The stock market has historically produced higher annual returns than bank accounts and bonds, which makes it an attractive place to park cash when looking ahead to retirement. It is possible to get started in the market with as little as $50, but making small investments can limit your options and make it harder to come out ahead.
Stock prices vary greatly from one company to another, but if you plan to invest in a well-known corporation, $50 might not be enough to buy a single share. If you only have $50 to commit, you'll have to invest in a company with a share price below $50. Some stocks, called penny stocks, trade under $5. You may be able to buy dozens or even hundreds of shares of penny stocks with $50, but they tend to be extremely risky investments.
To buy and sell stocks, you need a stock brokerage to make trades on your behalf. Some financial companies offer discount online brokerage services that allow you to set up and manage investments online. Some discount brokers require you to make a minimum initial deposit to open an account. You'll need to find a discount broker with no minimum-deposit requirement to invest $50.
Stock brokerages typically charge transaction fees each time you buy or sell stock. Fees can range from a few dollars to over $40, depending on the services you use. Even if you find a broker that charges a commission of just $5, you'll lose 10 percent of a $50 investment right at the start. Brokerage fees make it difficult to come out ahead when investing small amounts, so it is generally not a good idea to buy stocks a few shares at a time.
Mutual Funds and ETFs
A mutual fund is professionally managed and holds a collection of assets such as stocks and bonds. Mutual funds often require you to make a minimum initial investment of $1,000 or more, but some funds let you get started for as little as $50 if you sign up for automatic monthly investments. Exchange-traded funds, like mutual funds, own a variety of assets, but they trade on exchanges during the day just like stocks. ETFs don't have investment minimums, so you can buy an ETF with $50 as long as $50 covers the cost of at least one share plus any required transaction fees.