The personal finance community is quite an interesting bunch. We endlessly lament that the average person doesn’t save enough money, yet most of our investment articles assume readers have significant cash to invest.

Has anyone else noticed the chicken or the egg scenario here?

Backstory: When I was hired by a bank, my second week on the job was scheduled as a marathon credit training session. Why they hired me and had me do nothing for a week will forever be a mystery.

Nevertheless, the second week commenced, and I, along with other new hires, were crammed into a room for 9 hours a day to learn the basics of lending. The content was detailed and promising, and everyone was eager to dive in.

The training was a complete disaster.

The “beginners” course instructors had over 30 years of banking experience each. They were experts in their fields, but they had completely forgotten what it was like to start from scratch.

The concepts they took for granted were entirely alien to us. They spoke over our heads, and if our careers depended on it, there was no common language between teacher and student.

Nowadays, I notice a similar phenomenon online. Millionaire retirees are trying to get people with just a few thousand or even less to start investing.

As a fresh college graduate, I vividly remember what it was like to scrape together part-time job earnings to invest, and I hope to be more successful in showing you how to invest a small amount of money than those 60-year-old bankers explaining credit default swaps to greenhorns.

Let’s get started:

Special Considerations When Investing Small Amounts of Money

If you wish to invest a smaller sum wisely, certain investment rules become even more crucial:

1. Don’t Be Nervous

The initiation into your first investment might be the most nerve-wracking experience of your entire investing journey.

What if you make a mistake? What if you lose everything?

This is why keeping track of everything is important to you. Investing in a CRM system is also seen as an investment because you can always be in the know about your database, so you don’t mix everything up.

I’ve been there. Every investor has been there, from the novice index investor to Warren Buffett.

The good news is: now is the best time to start your investment journey. Unless you want to pay financial advisors hundreds of thousands of dollars over your investing career, you’ll eventually want to learn this stuff. I want you to know that in many cases, people think of extraordinary things, things that normally wouldn’t be done, just to make more money, like this article about recycling asphalt and turning it into profit.

Starting now is the best time to learn. After all, making a mistake with a $3,000 portfolio is much better than with a $300,000 portfolio.

Remember, while it’s possible to buy stocks with a credit card, there’s hardly a good reason to do so.

2. Trying to Beat the Market is Even More Foolish Than Usual

Generally, trying to outperform the market by trading individual stocks is a loser’s gamble. Most professionals can’t do it, and it makes even less sense when you have less money at stake.

The reason is simple: math. And percentages.

Okay, that explanation was terrible. Let me explain:

Imagine a hedge fund manager managing a $10,000,000 portfolio for clients. If he does well this year and outperforms index funds by 3%, that portfolio will earn an extra $300,000. That’s tempting money.

If you start your investing journey with a $3,000 portfolio, beating the index funds by 3% in a year will net you… $90. It’s not worth your time and energy. If you want to try day trading, you’ll have to use one of these no-PDT brokers.

Of course, there’s an obvious elephant in the room—vast amounts of research show that almost no one can consistently beat the market. To go against this research, especially when the potential rewards are so meager, is indeed foolish.

No matter which route you choose, tracking results correctly is important. Please read our Ziggma review to learn how to use the best tools to track the performance of your portfolio, risk factors, etc.

3. Trading Fees Can Devour You

Again, the old issue of percentages is here to prevent small investors from adopting overly risky trading strategies.

The typical brokerage fee for buying stocks is about $8, and another $8 when selling. When you’re trading $100,000 worth of stocks, $16 is nothing. But when you’re trading $1,000 worth of stocks, those fees are significant!

Paying $16 in fees to buy $1,000 worth of stock means your stock pick must increase by 1.6% just to break even. That’s too much pressure!

How to Invest with Little Money: My Own Small Investment Experience

If I sound confident in the last three points, it’s because I’ve lived through them all.

When I started investing in the stock market, I didn’t even have $1,000. If you’re in this situation, be sure to do further research on how to best invest $1,000 before making any investment.

I vividly remember my first stock purchase. I remember staring at the “place order” screen for hours, mustering the courage to click the button.

I also remember thinking about trying to beat the market by picking individual stocks to increase my returns. When I succeeded, I’d make an extra $50. What if I was wrong? I’d lose hundreds.

Unknowingly, I calculated the trading fees I paid. My returns were far behind the index funds! I was making trouble for myself, and it cost me a lot of time and energy!