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How to invest on a shoestring

"No amount is too little."

Senior Digital Journalist, Your Money

Investing was once thought to be solely a pursuit of the wealthy, but new money tools have made it possible to invest with as little as a few dollars at a time.

Despite this, many Australians are still under the misconception that to invest you need to have plenty of money, according to Christian Obrist, who is head of the Australian exchange-traded fund (ETF) business of global fund manager BlackRock.

Obrist told Trading Day this means more people are stashing their money in long-term, low-performance saving accounts.

“A lot of cash sits idle in bank accounts. And in the last 10 years in Australia specifically, interest rates have come down [and] you earn less on your term deposits,” he said.

Carla Harris, founder of savings app Longevity agrees that it’s a good time to look out for other alternatives.

“Now that we have seen this innovation of products and opportunities, there’s kind of been this democratisation of investing that then opened it up to the everyday Australian,” Harris explains.

“There has never been a better time for Australians to do more with your money, other than stick it under a mattress or have it in a low-interest bank account.”

Start early, keep going

While low-cost funds make it possible to invest with less, Harris it’s probably not worth it unless you have a lot of time up your sleeve.

“If you think you’re going to do it for just a couple of years and get a lot out of it, you probably won’t. Because you really want to leverage the compounding effect, that’s what’s going to do it for you,” says Harris.

“So if you’re going to say, I’ve only got $500 and I’m 65, you’re probably not going to get much from it. But if you start when you’re 20, you’ve got a long time frame to make that work for you.”

She adds that small amounts must also be fairly regularly topped up. A one-off injection of a few hundred dollars isn’t likely to have much of an impact, even over decades.

Invest in an ETF

An exchange-traded fund (ETF) can be a good option for people that don’t want to save up thousands before can they invest in a product.

Because they’re made up of a bundle of stocks or other assets, they offer investors an easy way to buy a variety of investments across sectors and assets.

That can make ETFs a safer choice for a small investment because an individual company can be prone to volatility.

And because they tend to require very little management, fees are low and many are available for as little as a few hundred dollars for a set of units.

“It’s a great way to get exposure to a sector or stocks that you normally don’t have the funds to buy individually,” investment adviser Todd Kerslake from Morgans told Trading Day. However, he advises “the way to do it is very slowly, over time.”

Re-invest dividends

It’s still possible to invest in an individual company with a smaller investment, so long as you’re prepared to take on the risk.

According to Kersland, it’s possible to open a share account with as little as $500 to $1000.

However, for people starting with a small amount, Kerslake advises investing in a blue chip ‘low-risk’ stock and then reinvesting the dividends over several years.

“Rather than getting a $6 cheque every six months, you get a couple of extra shares and then over time…they’ll have a decent amount of shares in that portfolio,” he explains.

Investing apps

There are now a number of phone apps that allow users to invest very small amounts on a day-to-day basis.

Apps such as Raiz and Longevity work by investing spare change into a fund or a portfolio of funds to accumulate and build every time you spend money.

“There’s a whole range of products out there, it really depends on what you’re looking for, long-term, short-term…how you want to engage with it,” Harris, CEO of Longevity explains.

“It might be going to the shops and spending 100 on groceries, and having $1 or one per cent automatically going into your super account. And through compounding over your working life, you’ve used very small micro investments to turbocharge your nest egg,” she says.

Watch the full interview for more.

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