Investing Unit 8: Investing Small Dollar Amounts




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!