What Are The Best Investments If My Income Is Low?

Are you curious about investing, but you don’t know where to start, or you’re worried your income is too low? You’re not alone. Around 42% of Americans don’t have money invested in the stock market, according to a 2022 Gallup poll. 

We know investing has long-term benefits, but it does come with risks, and it can be difficult to know when and how to take that leap. Sometimes, especially if your income is lower, it can feel impossible to start investing. But there are still ways you can invest when your income is lower or your budget is tight. 

Let’s look at some of the best investment opportunities available to you if your income is low.

Starts with Your Employer-Sponsored Retirement Accounts

Whether your income is high or low, one of the best places to start investing is through your employer-sponsored retirement account. 

These accounts allow you to set aside money from your income before taxes and invest it for your retirement. This reduces your taxable income in the year you make the contributions. You’ll, however, pay taxes on withdrawals from the account when you take them in retirement. 

Putting money in your work-sponsored retirement account will reduce the amount of money that’ll come home in your paycheck. This can be helpful because you don’t have to worry about saving or investing the money after you’re paid. And sometimes saving after the fact can be incredibly hard if your income is lower and your budget is tighter. 

Another benefit of investing into your employer-sponsored retirement account is employers often offer matching contributions. This means if you commit a certain percentage of income to your retirement savings, your employer will match it. To take full advantage of an employer match, be sure you know how much you need to contribute to the account to qualify for the match. 

Using your employer-sponsored retirement account and match can help your investments grow more over time.

Invest in What You Know

There are so many investment options out there to choose from. The overwhelming number of choices can make it difficult to know where to start, especially if your income is low. If this is your experience, investing in things you understand is a good place to start. 

You can look for investments in companies you know, use regularly, or are familiar with. Investing in what you know can help you get started and feel more confident in your investments. And remember, if it sounds too good to be true, it probably is!

Consider Exchange-Traded Funds

Another option you can consider if you’re ready to start investing but your income is low is exchange-traded funds (ETFs).

An ETF is a basket of different securities that an investor can buy, like an individual stock. Usually, ETFs track a particular index or sector of the economy. And you can find ETFs that allow you to invest in stocks, bonds, and commodities. You can also find both domestic and international ETFs. 

Because ETFs are made up of different securities, they allow an investor to buy into several different companies by buying a single ETF. This can make investing more accessible price-wise because you don’t have to buy each stock individually.

ETFs also typically have lower expense ratios and fewer brokerage fees than other investment options like mutual funds. This makes them more available to a wider range of investors, including those with lower incomes. You can buy ETFs through an online brokerage platform or through a financial advisor.

Look into Micro Investing Apps 

Sometimes, investing can feel like a far-off goal, especially if you don’t have a large amount of money to put toward different investments. 

This is when it can be helpful to start small. 

Remember, reaching your goals is the result of small effort over time. Starting small with investing may mean starting to use micro-investing apps. 

Micro investing apps allow you to start with a small amount of money and buy fractional shares of ETFs or individual stocks. This is a less expensive way to start investing because you don’t have to buy a full share of stock or an ETF all at once.

There are different ways to contribute money toward your investments through these apps. 

Most allow you to set up recurring transfers from your bank account in intervals that work for your budget. 

Other micro-investing apps have you link your debit card to your investment account. Then you can decide to have the investing app automatically round up your purchases and invest the amount rounded up in stocks or ETFs. They do this by rounding up your everyday purchases to the next dollar. The difference is then put in your account to be invested. 

For example, say you purchase a cup of coffee in the morning for $3.75. Your micro-investing app would round the purchase up to $4.00 and put the $0.25 into your account to be invested. This feature can help you find small bits of money in your budget to set aside to invest over time.

As with any investment account you start, if you decide to try micro-investing, be sure you understand the rules, requirements, and fees of the account you choose. And be sure you understand the investments you choose to make. Some apps you can consider for micro-investing include Stash, Acorns, and Betterment.

High Yield Savings Accounts

If you aren’t ready to jump into the market or you want to build up some cash reserves, a high yield savings account (HYSA) could be a good option for you. 

HYSAs earn a higher interest rate than most regular savings accounts. This allows your money to work harder for you as you save. You can set up automatic transfers from your checking account to your HYSA, even if they’re small, to grow the account. A HYSA is a great place to build up your emergency fund, save some money towards a goal you have, or to keep money you’re ready to invest while you figure out your investment strategy. 

Ready to get started?

Even when you have a lower income or a tight budget, there are ways for you to start investing and growing your wealth. Before you jump in and start investing, take stock of your financial picture. 

Consider paying off high interest debt and starting an emergency fund in a HYSA to be sure you’re on the right foot. 

Then, start investing! 

Remember, with investing you can both make money and lose money. Understand the risks associated with different investments and only accept risks that you’re comfortable with. 

Investing is a good way for you to grow your money, and even with a lower income, you can start today!