Investing can feel like a financial opportunity reserved for those who have already accumulated a great deal of wealth or disposable income. But investing, like saving, has the potential to benefit you even if you start with just a small amount. You can begin investing with as little as one dollar, meaning there are plenty of opportunities to grow whatever money you have to set yourself up for financial success.
Canadians have several small investment options at their disposal, ranging from high-interest savings accounts to robo-advisors. With a small amount of money, you can start investing through these options without sacrificing your quality of life. You’ll still be able to enjoy dining out, using subscription services, and playing at affordable deposit casinos while securing your future financial health.
High-Interest Savings Accounts (HISAs)
Seeing the term “savings account” may leave you thinking this isn’t investing, but a high-interest savings account can earn you interest on your savings—in other words, your savings can earn you more money. Over time, this can add up significantly through compound interest, where the interest you earn generates additional interest. While it’s not the most lucrative investment, it does come with minimal risk.
Using a HISA to hold your emergency savings is a great way to earn interest on money that you hopefully won’t have to use. It’s also important to note that if you don’t have an emergency fund or enough money to support yourself for three to six months without income, establishing this fund should be your top priority before making other investments.
Guaranteed Investment Certificates (GICs)
Another low-risk investment option you can start with a small amount of money is a GIC. These guarantee a set interest rate when the certificate reaches maturity, with terms ranging from several months to several years. The interest rates available on GICs vary based on the overall financial market and the term length. You cannot access the money in a GIC before it matures without losing the guaranteed interest.
Exchange-Traded Funds (ETFs)
ETFs consist of a variety of investment options, such as bonds and stocks, that are shared among a pool of investors. They make it easier to build a diversified investment portfolio at a low cost, making them a great option if you have limited funds to invest. ETFs also allow you to choose different risk levels, allowing you to pursue options that suit your comfort level. You can go to a brokerage or use an online app to invest in ETFs.
Mutual Funds
Similar to ETFs, mutual funds offer a diverse set of investment securities pooled among investors. The key difference is that mutual funds are professionally managed by a fund manager who will take care of the investments on behalf of all investors.
Real Estate Investment Trust (REIT)
Real estate has long been considered one of the best investments you can make. However, buying property requires a large sum of money for a down payment, making it a difficult investment for many to make. However, with a Real Estate Investment Trust (REIT), you can invest in real estate with a much smaller sum. REITs enable you to own a small share of profit-earning real estate, such as apartment buildings, malls, and office buildings.
Micro-Investing
Micro-investing is another option for investing small amounts of money. Typically, micro-investing involves buying low-cost ETFs or fractional stock shares. Many apps have been developed to integrate micro-investing into your spending habits. These apps round up each purchase you make to the nearest dollar and then invest the difference in ETFs or stocks. This is also known as spare change investing.
Popular micro-investing apps in Canada include Wealthsimple and Moka (formerly Mylo). Both allow you to use the spare change investment method and offer investment options to build a diversified portfolio that helps you grow your money over the long term at a risk level you’re comfortable with.
Robo-Advisors
For a more hands-off approach to investing, without the high cost of a financial advisor, robo-advisors are worth considering. Robo-advisors use algorithms to help you with a personalized financial plan, and you can set them up to automate investments on your behalf. It’s basically a set-it-and-forget-it approach to your finances—though, don’t forget it altogether. It’s important to monitor your finances and make adjustments as your income, budget, or goals change.
There are several popular robo-advisor options that Canadians turn to for their finances, including Wealthsimple, Questrade, and RBC InvestEase. These allow you to monitor and grow your finances online with minimal management fees and low minimum investment amounts.
While robo-advisor providers have real people available to answer questions, there is minimal human interaction or supervision regarding your account management, which not everyone is comfortable with. Assess what a robo-advisor entails compared to a traditional financial advisor (a real person) to determine what suits your preferences and budget.
Tax-Free Savings Accounts (TFSAs) & Registered Retirement Savings Plans (RRSPs)
You can invest in these different options through various accounts, including a tax-free savings account (TFSA) or a registered retirement savings plan (RRSP). These methods can help your investments grow by offering tax-free earnings or interest-earning accounts, as well as providing tax benefits, such as reductions on your annual tax return. Both have contribution limits you should be aware of, as exceeding these can result in penalties.
Some employers offer group RRSP contribution matching, where they will match how much you contribute to the group RRSP up to a certain amount—essentially giving you free money for your retirement. If this option is available at your workplace, consider increasing your contributions to the maximum matching amount before investing elsewhere.
Conclusion
There are many ways to invest, even with a small amount of money. You can start with whatever you can spare from your regular budget, and it doesn’t have to disrupt your regular life. Even investing a little bit can help your future self build financial security.
