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5 Smart Ways to Invest $100

Before you say “$100 is not a lot of money for anything,” consider that there are a few strategic options you can use to grow $100 significantly.

For example, while $100 may not seem like much today through the power of compounding it can increase substantially.

Compounding works by allowing your money to earn interest on interest effortlessly. In other words, if you invest your $100 into the market and earn an average return of +7% annually you will begin to see that account balance grow exponentially over time.

In this example, after the first year invested your account balance will be $107 dollars. Then, in the second year your +7% return will be calculated based on this larger account balance of $107 which results in an ending value of $114.49. Assuming an average return of +7% each year you can see how your account has started to increase its earnings power by returning $7.49 in year two after earning just $7 in year one.

Over time, the larger the dollar amounts the more powerfully your account will grow.

Below are several options for where you can stash $100 and let it work for you.


Brokerage Account

Opening an online brokerage account can offer a few benefits.

First, you will have the flexibility to invest your $100 however you wish. However, with $100 it is recommended that you invest in either individual stocks or Exchange Traded Funds (ETF’s). Since some stocks may cost more than $100 you will be trading fractional shares but still have an ownership stake in the underlying company.

Alternatively, an ETF blends the best attributes of a mutual fund and an individual stock. For example, ETF’s provide diversification benefits that are similar to a mutual fund by investing your money in an index like the Standard & Poor’s 500 Index. However, a major benefit to ETF investing is that it costs far less than mutual fund investing, thereby keeping more money in your account to compound.

For most investors starting out with an index-tracking ETF will be sufficient as it will help you garner market-like returns for your portfolio by keeping your expenses low.


Robo-advisors

Using a robo-advisor is another viable option for your $100. Investors who would prefer doing less work to manage and maintain their account would be better suited with this option.

With a robo-advisor your $100 will be invested by a company like Stash or Acorns based on a series of questions you answer regarding your risk tolerance and goals for your money.

For example, if you are saving for retirement the $100 will be invested with a long-term target in mind and have a riskier portfolio of ETF’s than if your account was being invested for a five-year goal where it would be important to have higher certainty of reaching such a short-term target.

At first you may not want to take on a riskier allocation of assets, however you will be compensated appropriately for the additional risks. That is, in finance additional risk yields additional reward. In other words, to extract an average annual return from the market of roughly +7% you will need to build a portfolio that is largely exposed to stocks and stock-based ETF’s mimicking market returns.


Retirement Accounts

The sooner you start saving for retirement the earlier you can begin to take advantage of the effects of compounding.

If you have the option at your employer, participate in the company 401K program. 401K’s are company-issued plans that make investing very easy for you. You determine the amount to be deducted from your wages each pay period and choose the investments. Alternatively, some companies have opted to automatically enroll employees into a 401K program and an appropriate target-date mutual fund to simplify the process of getting started.

Additionally, the $100 could be used for an increase in your existing 401K contribution. Any increase in the amount you save will get you that much closer to reaching your financial goals.

If you are self-employed or do not have a 401K option then opening an IRA will be your best choice. An IRA will be self-directed like the brokerage account in the example above. In other words, you are free to invest the money in products like stocks and ETF’s of your choice.


Buy Books or Online Courses

As Benjamin Franklin once said, “An investment in knowledge pays the best interest.”

Follow the advice of Ben and use your $100 to buy books or enroll in an online course that will increase your knowledge on a subject matter. As a result, you will compound your knowledge base and accelerate your learning curve thereby creating an edge for yourself.

Additionally, parents can give their kids financial incentive to read by rewarding for the number of books read, the difficulty of content, as well as how well the new information is applied. Despite its simplicity, this example may be the most analogous to success in adulthood as acquiring knowledge and being able to apply what was learned can lead to success.


Buy an Experience or Travel

Another unique option for investing your $100 is to use the money to experience something new or travel somewhere interesting.

This could be as simple as a nice date night for you and your significant other at a restaurant with friends. Or, another option would be to take a day trip to find a great beach, lake, or mountain trail to explore.

Either way you will be able to invest in enriching your life and the lives of others around you with these experiences.


Key Takeaways

While $100 isn’t the largest amount to fund your investing, over time it will grow at an increasing rate to become a meaningful stash. Through the process of compounding your investment will begin to make considerable amounts of money in interest alone each year eventually surpassing the initial $100 investment.

Aside from selecting investment options like a brokerage account, 401K, or IRA you could invest the $100 in your education or personal experiences. In the latter case, you will compound personal growth that enriches your life and that of others around you.

No matter which option you choose it’s best you get started soon.

As the saying goes, “the best time to plant a tree was 30 years ago, the next best time is right now.”
So put your money to work and start taking advantage of compounding today.


As always, please feel free to contact me with any questions or comments. Thanks for reading!


John

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