How to Start Investing in Stocks with $20?

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how to invest 20 dollars

Updated: January 13, 2021 by FinPins

How to Start Investing in Stocks with $20?

How to start investing in stocks? Taking the first step to invest in stock market can seem daunting. You want to invest in Amazon but the stock trades at $3300. You want to buy a Google stock but are intimidated by the $1500 market price. What can you do if you just have a spare $100 and want to get involved now? The good news is that you can invest in these great companies’ stocks with even a little money now using the fractional share or partial share feature. Fractional share feature is available on Robinhood as well as M1 Finance platforms.

You can invest little amounts, say $20, every week and use the dollar cost average (see section below) method to mitigate the short term volatility. Here, in this article we will demo investing $20 in M1 finance to buy partial shares.

Read also: How to buy fractional share on Robinhood

How to Invest $20 in Amazon or Apple on M1 Finance?

start investing

We love M1 finance for multiple reasons. Here’s three mentioned below:

M1 Feature: Ability to Create Multiple Customized Pies on M1

such as one pie for FAANG stocks only. You can choose the weights of each stock according to your wish. If you believe more in Netflix than Amazon, you can give it a higher weight so your money gets invested accordingly.

Read: How to Create Pie and Portfolio on M1 Finance

M1 Feature: Ability to mimic an ETF on M1

You really like an ETF but don’t want to pay the ETF fees? Just create your own pie and put the stocks and desired weights held by the ETF!

M1 Feature: Ability to buy partial shares on M1

There are so many amazing stocks out there and you want to invest in ten of them this month. Let’s say you want to buy FAANG stocks.
If you buy 1 stock each of Facebook, Apple, Amazon, Netflix and Google, it will cost you well over $3500. But what to do if you just have $100 to invest this month? With M1 finance you can buy partial shares. For example,

  • Create a FAANG pie, with stock weights of your choice. Let’s assume 20% each for simplicity.
  • Invest $100 in the FAANG pie you created.
  • Effectively you’re investing $20 each in Facebook, Apple, Amazon, Netflix, and Google stocks.

Start investing in custom pie on M1 Finance: MFAANG

In this M1 MFAANG pie, I have added the 6 stocks – Microsoft (20%), Facebook (15%), Apple (15%), Amazon(20%), Netflix (15%), and Google <Alphabet> (15%).

As the stock prices fluctuate, the assigned percentages change. As you can see in the picture, Amazon has grown to 21.1% of the pie because the AMZN stock price climbed at a faster rate. There is a rebalance feature in M1, but bear in mind, rebalancing too often might trigger multiple buy and sell transactions, and result in fees.

mfaang
With just about $500, I invested in 5 popular tech stocks. Unlike ETFs that choose weights accoring to market cap or share price, I can choose my own weight factors in the pie. As you can see in the image, at the time of creating the pie, I had picked weights of 20% for Amazon, 20% for Microsoft, 15% each for Facebook, Netflix, Google and Apple.

Start Investing in Custom Pie on M1 Finance: Cashless Revolution

how to make pie on m1
This is one customized pie I had created for stocks that I believe will benefit from the world going cashless in future. I put stocks of Square, Mastercard, Paypal, Axos, and Visa in my pie and assigned some weights to each stock. In total I invested less than $250 in the pie, but could buy partial shares of all five stocks.

Open FREE account with M1 Finance here and get up to FREE $20* to start investing.

*Please read offer details on M1 finance site for more information on the promotion terms and validity.

Other options to Start Investing With $20

Robinhood recently introduced the feature that allows you to buy partial shares. If you’ve got a favorite stock or just want to invest in ETFs without creating customized pies, you can read how to buy fractional shares on Robinhood here.

Apart from Robinhood, Stash and Acorns are other two apps where you can invest in small amounts.

When to buy a stock?

Investors with a longer time horizon (that’s my preferred style of investing) should aim to buy stocks regularly, once a week, once a month, or any frequency that suits them. Regardless of the short term volatility, average investors gain in the longer term from disciplined periodic investing. It is very difficult for an average investor to speculate and time the market to buy low and sell high in short periods of time.

Another benefit of buying stocks regularly is ‘dollar cost average’.

Dollar Cost Average

Suppose a stock has a market price of $100 in January 2020, $110 in February, $90 in March, $85 in April , $95 in May, $102 in June, $110 in July, $115 in August, $118 in September, and $120 in October. A disciplined investor who allocates and invests a fixed amount every month in the stock, using the partial stock feature, here is how his or her transaction history would look like.

Total money invested over 10 months: $5000, total shares purchased: 48.45, average price paid per share: $103.21. This is how dollar cost averaging works. Dollar Cost averaging enables the investor to take advantage of the market volatility by buying more when the price is low and less when the price is high.

MonthStock
Price
InvestedShares
purchased
Jan-20 $                100.00 $  5005
Feb-20 $                110.00 $   5004.54
Mar-20 $                  90.00 $  5005.55
Apr-20 $                  85.00 $   5005.88
May-20 $                  95.00 $   5005.26
Jun-20 $                102.00 $   5004.90
Jul-20 $                110.00 $   5004.54
Aug-20 $                115.00 $   5004.34
Sep-20 $                118.00 $   5004.23
Oct-20 $                120.00 $   5004.16
 $             103.21 5,00048.44
Dollar
Cost
Average
 Total InvestedTotal Shares
bought
dollar cost average
MonthStock Price Invested Shares bought
20-Jan $100.00 $500 5.000
20-Feb $110.00 $500 4.545
20-Mar $90.00 $500 5.556
20-Apr $85.00 $500 5.882
20-May $95.00 $500 5.263
20-Jun $102.00 $500 4.902
20-Jul $110.00 $500 4.545
20-Aug $115.00 $500 4.348
20-Sep $118.00 $500 4.237
20-Oct $120.00 $500 4.167
$104.50 $5,000 48.446
Dollar Cost Average Total Invested Total Shares bought

Happy investing!