How to Invest Small Amounts of Money

The best way to go big is to start small. Many people want to start investing, but don't know where to start. Here's how.

	Set up a free online savings account, or, if this is being done for a minor, go to your local bank and inquire about free savings accounts for minors. Make sure the account has no fees, because you do not want fees to eat your savings alive. Some places that offer free online savings account include (but are not limited to): ING Direct, HSBC Direct, Emigrant Direct, FNBO Direct, E*Trade Bank, and iGoBanking. (See the resources section for tips on how to find the best banks.)
	Decide how much you can save on a regular basis. Different people have different definitions of small amounts of money, of course. It might be $20/week or just $5/month.
	Put that amount into your savings account regularly and watch the balance grow... slowly.
	Start researching mutual funds. Savings accounts are not investments, since they generally grow slower than inflation. Mutual funds, however, are investments.
	Once you know what mutual funds are and how they work - don't invest in things you don't understand! - then start finding some mutual funds. There are some mutual funds that have rather low initial investments - I've seen as low as $100, but $250 is a somewhat common low-end initial investment. (See the resources section for tips on how to find the best mutual funds.)
	Open an account with a low-cost brokerage firm or mutual fund company, such as E*Trade or Vanguard. Make sure you open your account so that fees do not eat your account alive. If you have a taxable income, consider opening a Roth IRA (a kind of tax-advantaged retirement account). Take the money from your savings account and invest it in mutual funds.
	Continue to save regularly. Some companies will not allow you to invest only $20 at a time in mutual funds, so deposit the money into your savings account, and once the balance is big enough, invest again in mutual funds. Just $100 put in the stock market at age 20 into a mutual fund that returns 12% (the average for the stock market) will become $16,398.76 by age 65.