Investing Unit 8: Investing Small Dollar Amounts

Personal Finance November 17, 2015 Print Friendly and PDF

 


 

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Earlier units in this course have discussed specific types of investment products (e.g., mutual funds) and various investment prerequisites. Unfortunately, and erroneously, many people think that they need a substantial sum of money to start investing. This is simply not the case. The objective of this unit is to demonstrate that investing is possible, even on a "shoestring" budget. Investing can be done with as little as $25 (e.g., a U.S. savings bond), and a variety of investments (e.g., Treasury securities ($100 minimum purchase), unit investment trusts, and many mutual funds) are available for an initial outlay of $1,000 or less.

Once you’ve taken care of "the basics" (e.g., reduced household debt, purchased adequate insurance, and set aside an emergency reserve of at least 3 months’ expenses), you are ready to explore affordable investment options. This way, your money will earn a higher rate of return over time than a certificate of deposit or passbook savings account to help you achieve important financial goals. This unit will discuss investments that can be purchased for a thousand dollars or less and are suitable for beginning investors whose largest asset is their future earning ability.

Even saving $20 a week for retirement is much better than doing nothing. While this may not sound like a lot of money, over time it really adds up. At a 5% annual real rate of return, an investor would have $36,100 more than they would otherwise have in 20 years ($65,500 with a 10% return), according to the Employee Benefit Research Institute. In 30 years, the figures for 5% and 10% returns are $72,600 and $188,200, respectively, and, in 40 years, the figures are even more dramatic: $131,900 with a 5% return and $506,300 when $20 per week is invested to earn 10%. The take home message: small-dollar investments matter!