How to Invest in Shares With Little Money

"You need money to make money." It's a phrase we've all heard, and for many Australians, it's the reason they never start investing.

You don’t need a fortune to start investing in shares with little money. What you do need is enough investment capital to make the investment worthwhile and, more importantly, the knowledge to make sensible decisions with the money you have.

If you’ve worked hard to put aside $200 after paying the mortgage or rent, groceries, petrol and the seemingly endless stream of bills, should you invest that money now or would you be better off leaving it in the bank and continuing to save?

There is no single answer because having enough money to buy shares and being ready to invest are two different things.

In this article, you’ll learn how much money you need to start investing, common mistakes that are holding new investors back and the best strategy to invest in stocks with little money so you can start building wealth with confidence. 

Can you invest in shares with little money?

Yes. The barriers to entering the share market are much lower than they once were, with online brokers making it possible to buy shares without having thousands of dollars behind you. But accessibility shouldn’t be confused with readiness.

If you’re completely new to investing, our guide on How to Trade Stocks explains the fundamentals and knowledge you require before you buy your first shares. When you’re ready to understand the mechanics of placing your first trade, How to Buy ASX Shares takes you through that process step by step.

Over more than 20 years of educating traders and investors, one lesson has always rung true: how much money you begin with has little to do with your success. It comes down to the choices you make and the habits you develop from now on.

Another stock or opportunity will always be available, but money lost through poor decisions is much harder to replace. That’s why investing a small amount of money and learning how the stock market works is better than investing a larger sum without a plan.

Protecting your investment capital should be just as important as growing it.

How much money do you really need to start investing?

No magic number suddenly makes someone ready to invest.

Your financial position matters. So do brokerage costs, the amount you intend to invest in each stock and whether that money is genuinely available to invest. This last point is often overlooked.

Money needed for next month’s rent, an unexpected car repair or an overdue credit card should not suddenly become investment capital because the market looks attractive.

If you have very little money available, Wealth Within’s approach is straightforward: create a budget, regularly put money aside and build your capital before rushing into the market. There is another advantage to waiting.

While your savings grow, you can use the time to build your knowledge and skills to become a more informed investor. By the time you have more money available, you should also know considerably more about what you intend to do with it. That combination is far more beneficial than simply opening a brokerage account and placing your first trade.

Is $100 enough to invest in shares?

The short answer is yes; thanks to lower brokerage fees and online trading platforms, you can start investing with as little as $100. The question is, is $100 enough to help you hit your investment goals? This is the more important question. 

Brokerage matters because transaction costs have a proportionally greater impact on a small investment.

If you pay $5 in brokerage fees to buy and another $5 when you eventually sell, that $10 represents 10 per cent of a $100 investment before you’ve made any profit. The same $10 represents only 1 per cent on a $1,000 investment.

The numbers will vary by broker, but the principle remains the same. Costs matter. So don’t assume that because a platform allows you to invest $100, you should.

Develop the skills before increasing the amount

When your investment capital is limited, use it to become more selective, not more speculative.

Build your savings and spend time learning how to analyse the market. Develop a trading plan that tells you what you are looking for, why you would enter a trade, how much capital you are prepared to risk and under what circumstances you will sell.

You can then paper trade your strategy before committing more of your savings.

This gives you an opportunity to find weaknesses in your decision-making while the mistakes are still on paper rather than appearing as losses in your brokerage account.

A smarter strategy for investing with little money

People with small amounts of capital are sometimes drawn towards speculative shares or leveraged markets because they believe taking more risk is the only way to make meaningful money.

The logic sounds appealing: if you don’t have much money, find something capable of rising quickly.

The problem is that higher potential returns generally come with higher risk. Without the investing knowledge to manage that risk, trying to accelerate your wealth can have exactly the opposite effect.

Starting small should not mean gambling with your money. 

Build two valuable assets

Successful investors build two valuable assets over time: their investing knowledge and their investment capital. The relationship between them matters, as both are equally important.

Capital gives you the ability to take advantage of opportunities. Knowledge helps you decide which opportunities deserve your capital. If you concentrate on one and neglect the other, you create a weakness.

Someone with considerable savings but little knowledge can make very expensive mistakes. Someone with considerable knowledge but no capital has little ability to put that knowledge to work. That’s why I recommend you build both.

How to select the right investments with little money

Having less money does not mean you need to search for cheap shares. This is one trap beginners fall into. 

It can not only cost you money, but it can also hinder your ability to generate profits because you are speculating that a cheap stock that is trading at $2 will perform better than a blue-chip company trading at $20.

Don't assess a stock by its price

A $2 share looks more affordable because your money buys more shares. But the number of shares sitting in your portfolio tells you very little about whether you have made a good investment.

Owning 500 shares instead of 10 doesn’t make you wealthier if the investment performs poorly.

The share price tells you very little about whether a company is expensive or cheap. To make that judgement, you need to understand the business and the quality of the stock, the risk involved, and its ability to rise over the medium to long term. 

Buying a low-priced company simply because you can afford more shares is not sufficient analysis to make an informed decision.

Concentrate on becoming a better investor

When you’re starting out, it is easy to spend hours searching for a stock that may deliver the biggest return. But you'd be better off spending that time building your investing knowledge so you can make more informed decisions.

Learn how to assess companies and understand market trends. You also need to understand the risks you are taking, why you are entering a trade, and what would cause you to sell it.

The market will always provide opportunities to invest. The skill of recognising and managing those opportunities is considerably more valuable than finding one lucky stock early in your investing career.

Right now, the goal isn’t to own more shares or invest more money. The goal is to become a better investor.

Common mistakes to avoid when investing with little money

Limited capital makes avoiding unnecessary mistakes even more important. Here are six that commonly catch beginners out.

1. No savings plan

If saving depends on having money left at the end of the month, there often won’t be much. Make investing part of your budget instead. Decide what you can realistically put aside and treat that amount as part of your normal financial commitment.

2. Investing without a trading plan

A stock can look very different after you invest your money. Before buying, know why you are entering, how much capital you are prepared to risk and when you will sell.

Make those decisions while you are objective, rather than trying to invent the rules after the market moves against you.

3. Taking advice from other people

A friend tells you about a stock. Someone on social media says a company is about to explode. A commentator announces their latest hot stock pick.

Not one of them has to live with your loss if you get it wrong. Listen to ideas if you choose but make the decision yourself. Analyse the opportunity against your own rules and be prepared to walk away when it doesn’t qualify.

Independence is an important investing skill.

4. Chasing cheap shares

A low share price is not the same thing as good value.

Buying a stock simply because it costs 20 cents can expose you to businesses with poor liquidity, greater volatility or significantly more risk than you realise. Judge the investment, not the price tag.

5. Expecting fast results

The share market is often marketed through stories about spectacular winners. These stories are exciting, but they are also a poor foundation for an investment strategy.

Wealth is generally built over years, not weeks. Give yourself time to learn, make mistakes, improve your process, and let your capital grow.

6. Increasing your position size too quickly

A few profitable trades can make a new investor feel invincible. That is often when position sizes suddenly increase.

Don’t let a short run of success convince you that you have mastered the market. Increase the amount you invest as your capital and competence justify it, not because you are excited by recent profits.

FAQs

How can beginners invest with little money?

Start by getting your finances in order and deciding how much you can regularly save without compromising money you need for everyday living.

Use the time you are building your capital to learn how the share market works, develop a trading plan and practise applying it. You don't need to rush into your first investment just to say you have started.

Where can I invest money for good returns?

No investment automatically produces good returns.

Rather than asking where you can make the most money, first ask whether you can assess the opportunity and understand the risk you are taking.

If you cannot explain why you are buying an investment and what would cause you to sell it, you probably need to do more work before committing your money.

What are the best shares for beginners with little money?

While there is no universal list of “beginner shares”, those starting out are better off investing in highly liquid shares while they are learning. That means sticking to the Top 20 shares on the stock market, while developing their knowledge and skills.  

Avoid choosing shares simply because the share price looks affordable. Learn to assess the company and the investment opportunity on its merits.

Can small investments really build wealth?

They can be a starting point, but the mathematics still matters. A very high percentage return on a tiny amount of capital is still a relatively small dollar gain. That’s why building wealth involves more than earning a return on your first investment.

Continue adding to your capital while improving your ability to manage it. Over time, you have more money working for you and, ideally, greater skill in deciding where to put it.

Is $100 enough to start investing?

It may be enough to access certain investment platforms, but that doesn’t automatically make it a sensible investment.

First, look at brokerage fees and other transaction costs. Then consider whether you'd be better off starting with a larger investment while you keep learning.

Being able to invest and being ready to invest are not the same thing.

Continue building your knowledge

Investing with little money is a starting point, not a disadvantage. Use this time well.

Create a budget, build your capital and learn how the share market works. Develop decision-making rules and practise applying them before the stakes get higher.

Remember, the best investment you’ll ever make is in yourself, which is why building your investing knowledge is so important.

Dale Gillham is one of Australia’s leading investment educators and the bestselling author of How to Beat the Managed Funds by 20% and the award-winning Accelerate Your Wealth: It’s Your Money, Your Choice. His books explore the principles behind managing money, investing directly in shares and developing the skills required to take greater responsibility for your financial future.

To wrap up

You don’t need to wait until you are wealthy to start investing. But don't confuse having $100 or $200 available with being ready to risk it.

There are two things you can work on from day one: the money you have available to invest and your ability to invest it well.

Building your knowledge and skills helps you make better decisions, while capital gives you opportunities. Build both, and you’ll create the foundation for lasting wealth.

Disclaimer

This article contains general information and educational market commentary only. It does not take into account your objectives, financial situation or needs and should not be treated as personal financial advice or as a recommendation to buy, sell or hold any financial product.

Any stocks, sectors, strategies, or market scenarios discussed are provided for educational purposes to illustrate the concepts covered in the article and should not be considered individual investment recommendations.