A financial planner says it's possible to start investing and building wealth with just $25 — here's how (2024)

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• Financial planner Richard Hall says you don't have to be rich to start investing.
• Before you put money in the market, make sure you have three to six months of living expenses saved.
• Then you can consider opening a brokerage account and investing in a simple, diversified portfolio.
• Check out Vanguard Personal Advisor Services® to get the investment advice you need to help build the life you want »

The adage "It takes money to make money" is no longer valid. No matter your income level, if you can afford to put aside even a little money, you can become an investor. We spoke with Richard Hall, a financial planner and wealth advisor with Pitzl Financial, to get tips for first-time investors.

Save before you invest

Hall's first suggestion is to create an emergency fund before you start investing. "We usually like our clients to save anywhere from three to six months" of living expenses, he said.

If that seems like a lot to keep in a savings account that's barely earning interest, you could put some of your emergency reserves into an investment account once you have established a savings habit. Where you want to stash your nest egg will depend on your risk tolerance; while investment accounts tend to grow over time, you do have some exposure to market downturns.

Focus on saving a little every month

"If your liquid expenses are covered," Hall said, "it's good to start a regular investing habit." Even $25 a month — an amount most people won't miss — is an excellent place to start. "That will add up over time, and it creates a good long-term habit for you," he said.

When many of us (myself included) think of investing, we think of accounts with minimum opening balances in the thousands of dollars. That makes it hard for people without a lot of disposable income to get started.

However, with the rise of ETFs (exchange-traded funds), you can find many low-fee investment accounts with no minimum balance. For example, a quick search found funds with no minimum investment at Fidelity,Vanguard, and Schwab, and there are undoubtedly additional options.

"Typically, you can get set up pretty easily at small amounts," Hall said. He emphasized that regularity was more critical than the amount. "It's better to set up a good habit than to do something once and forget about it," he said.

Keep it simple

When you're beginning to invest, Hall suggests keeping your strategy simple.

"You don't need to do anything that's overly complicated to participate in the market," he said. Instead, "try to be as diversified as possible with as few holdings as possible."

Hall suggests starting by investing in three different funds. For example, you might pick one US stock fund, one with international stocks, and a bond fund. Hall suggests a 60/40 ratio of stocks to bonds.

An even simpler approach is to buy a fund that already holds a mix of stocks and bonds. Many investment firms offer balanced funds preloaded with a 60/40 mix. This type of fund has advantages for first-time investors:

• You only have to come up with the money to invest in one fund. This is particularly helpful if you have just a small amount to invest each month. It is easier to put $10 into one fund than $3 each in three.
• You can invest without fuss. If your life is already too busy, a balanced fund requires very little of your overcrowded headspace.
• The fund manager will balance your investments, so you don't have to.

Hands-free rebalancing may be the most significant benefit of a balanced fund investment. Balancing is transferring money between accounts to preserve your asset mix. The process involves transferring money from an overperforming fund into one that's underperforming.

Taking money out of an account that's growing to add to one that's shrinking can feel counterintuitive — so you might be reluctant to do it. But, Hall said, "Proper rebalancing has an additive effect on returns."

"An individual investor falls into mental traps," he said. "Rebalancing forces individuals to ignore the emotional behaviors that they would fall into and take a more disciplined approach to investing." Or you could choose a balanced fund and let the fund manager take care of that for you.

Don't rely on get-rich-quick schemes (cough, cryptocurrency, cough)

We all love stories about regular schmos who become millionaires by day trading GameStop, but speculation is a risky and unreliable path to building wealth.

When asked about investing in cryptocurrency, Hall said, "Things have a value when people think they have a value. I don't view it as a great place to grow wealth over time. When you see 50% swings up and down, that's not really a good investment."

He sees the future of crypto as too uncertain to make it a good option for building wealth. "If you're going to put $25 in, take the $25 you were going to use at the casino and put it into crypto instead," he said. You probably should apply that advice to meme stocks or other high-risk investments as well.

"We're trained to look for the home run," Hall said. "We see people becoming millionaires overnight." But he noted that most people who have $1 million or more when they retire got there by saving regularly and keeping it simple, not by chasing the latest hot investment.

When to seek investment help

You can easily open an investment account at a low-cost brokerage if you're starting small — no professional assistance needed. However, if your impetus for investing is a large lump sum of money, such as an inheritance, it's a good idea to enlist help to make the best investment choices.

"Trying to rebalance at $1,000 is not that productive," Hall said. "A half a percent on $1,000 is not as noticeable as a half a percent on $100,000."

He noted that if you have $100,000 or more to invest, your choices can also have tax implications. For example, if you inherit money from an IRA, you have 10 years to take distributions from the account. When to take the cash out will depend on the type of account. If it's a Roth IRA, which holds after-tax income, you will do better if you wait until the final year to empty the account because you get 10 years of tax-free growth and don't have to pay taxes on the money when you take it out.

"People should go to see a [certified financial planner] when it becomes uncomfortable or when they have questions," Hall said.

Hall's final words of advice for the first-time investor: "Keep it simple. Try and make it repetitive. Stick with it." And: "It's time in the market, not timing the market."