So many times I hear the question from beginners or newer investors “How should I invest $100?” Or the other question “What stock should I buy for $50.” These question are legit questions, however to the experienced investor it shows something is off with this thought process.
The question “How should I invest $100?” is the wrong question, also it is lacking in context. If you just found a $100 under a vending machine and you are about to have your home foreclosed on, the best investment may be to pay your bills. Or if you are young and starting a business, the best investment may be in yourself or in your business.
How could you invest $100?
You could use that $100 to start a side hustle. You could invest that $100 to buy a lawnmower and spend all summer mowing lawns and turn that into $4K. Maybe you are a college student and need books (do they still require those in college?). So you see, when asked how to invest $100 the results can be very personal.
The question comes from a good place, here is what we are going to assume: We are assuming that this person has a steady job, not high interest credit card debt, and has a $100 surplus and wants to get into investing.
Obviously, if you don’t have any income coming in you can forget about “investing” in anything- you have an income crisis. If you are BFFs with creditors calling and demanding you repay them, you haven’t proven you can handle your finances to invest.
The Foundation of Knowledge
Investing needs to be done with a solid foundation of personal finance. You need to learn to get your budget in order with financial defense first. If you go ahead and start investing without understanding how money works and how finance works, that is like building a skyscraper without a solid foundation- it will eventually crumble.
You also need to have a solid emergency fund. An emergency fund is money in the bank that is liquid and easily accessible in case of an emergency. Your home equity doesn’t count, stocks don’t count, you need to be able to pay the bills if you can’t work. Without an emergency fund, your $100 invested is going to need to be pulled out the moment your car breaks down, etc. Experts recommend 3-6 months worth.
Secondly, you need to understand why you are investing! Some people have unrealistic expectations. If you expect to invest $100 and get $1000 back in 1 year, that is not what I would call investing. I would call that gambling, and I don’t gamble with my money. If you want to gamble, go to a casino.
What about expected return?
When I am investing, I am investing from a solid foundation and with the right expectations. I am expecting from my investments between a 7%-12% annual return. I invest in rental real estate and stock index funds. Both of these throughout history have averaged the numbers I have mentioned above. Source: fool.com for general advice, however take it with a grain of salt.
So let’s look at our question “How do I invest $100?” If you look at this from an investment point of view, even if you received a 10% annual return that is not going to change your life. $10 means around 83 cents per month. You need more money to invest.
I feel bad for people who aren’t financially literate, I know they don’t teach this in school. They think that they can make some “smart investments” and turn that $100 into $1000, then get rich. However, I have detailed the answer to the question of “How to get rich?”
So the question should be “How can I invest $100/month?” This question shows that this person may be a financial novice, but they have understood the rules of the game. They know that they have a surplus of around $100 they can play with each month.
How to get the Snowball Rolling
This is the start of something big. That $100/month can turn into $200/month with a raise, or maybe you pay off a car or cut cable and then that $200 turns into $400/month. Now we’re cooking and now the wealth will build!
When I see the question “How do I invest $100?” Or even “How do I invest $1000?” you can see now that the question is the wrong type of question. They need more money, and they need it monthly! Also, they should work on their own financial education because I believe if I could learn it without paying some guru, then anyone can learn about money.
I don’t invest to “get rich” overnight. I invest the surplus money I have every month into an investment that will continue to have my money grow consistently for the rest of my life, and my family’s life.
Usually, in retirement it is recommended you withdraw only 4%-5% of your stock portfolio every year in order for it to last. That means a $100K portfolio would generate you between $4K-$5K per year. While it is better than nothing, I think we all would agree having more would be preferable.
Asking the Wrong Questions Show a Lack of Knowledge
Asking “How to Invest $100?” Is like asking standing at the middle of the basketball court and telling Steph Curry “I am going to be a pro like you, how do I throw the ball in the basket like you do?” This question is wrong for many reasons.
First off, any basketball fan will tell you he “shoots” the ball, not “throws” the ball. There is an art form to the way he shoots and he has spent thousands of hours throughout his life practicing it. Also, you are assuming there is some magic secret he has that if you know it, you too will be an NBA MVP.
However, truth be told everyone is unique. Players are taught the fundamentals of the game, and it is up to them to mold the fundamentals to their own unique styles given their talents. You wouldn’t see Shaq running around the 3 point line afraid to go in the post and dunk.
The same goes for personal finance and investing. You need to get the basics in order to be a “player.” Then, once you know the basics you can play the game. As you play, you will develop knowledge and use your skills to formulate your strategy.
You All Have Some Sort of Advantage
Some have skills that let them earn a high income. Some are unusually frugal which helps them invest. Others are experts in real estate which helps them achieve a higher return. Some are younger and have time on their sides. Everyone has some advantage, however everyone also needs a financial education.
So, as some of you internet folks put it, I guess this is a “TLDR.” How do I invest $100?” Answer: Don’t. Go read free blogs like this one and take out a book or two from the library. Save that money and keep stacking it, once you get the basics of personal finance you will know what to do with it.
What do you guys think? Did I miss something? Was I too harsh? Let me know in the comments below and follow me on social media! I hope this helped someone!