Have you ever thought “Can I invest $5 dollars in stocks?” and immediately dismissed the idea because it seemed too small to matter? Well, I’ve got news for you – not only CAN you invest just $5 in stocks but it could actually be a really smart move for your financial future.
Gone are the days when you needed thousands of dollars to start investing. Thanks to modern investment apps and fractional shares, even your spare change can help build wealth over time. Let’s dive into how you can get started with just a Lincoln in your pocket.
The Rise of Small-Dollar Investing
According to a survey by The Penny Hoarder nearly 70% of investment app users have purchased stocks for $5 or less. That’s right – you’re not alone in wanting to invest small amounts! In fact people between 35-44 years old are the most likely to buy these budget-friendly stocks, with about 75% of them doing so.
The investment landscape has completely transformed over the past few years A whopping 66% of investment app users only started investing since 2020. This explosion in micro-investing proves you don’t need to be wealthy to begin building a portfolio.
How Can You Actually Invest Just $5?
So you’ve got five bucks burning a hole in your pocket and you wanna put it to work. Here are your options:
1. Fractional Shares
Fractional shares have revolutionized investing for people with limited funds. Instead of needing to buy a whole share of stock (which could cost hundreds or even thousands), you can purchase a fraction of that share.
For example, if Amazon is trading at around $3,000 per share, but you only have $5 to invest, you could buy approximately 1/600th of an Amazon share. It’s like buying a slice of pizza instead of the whole pie!
2. Micro-Investing Apps
These apps are specifically designed for small-dollar investors. Many let you start with just $5 and automatically invest small amounts regularly. Some popular features include:
- Round-up options that invest your spare change from purchases
- Automatic recurring investments (even as small as $5 weekly)
- Portfolios of ETFs and mutual funds selected by robo-advisors
3. Penny Stocks (But Be Careful!)
Traditionally, stocks trading under $5 were called “penny stocks.” While they might seem appealing due to their low price, they’re extremely risky. These companies are often unproven or financially troubled, and you’re more likely to lose your entire investment.
Between these options, fractional shares of established companies or micro-investing apps are generally much safer bets than penny stocks for your $5 investment.
Is Investing Just $5 Really Worth It?
You might be thinking, “C’mon, what’s $5 gonna do for me?” Let me tell you – it’s not about the $5 itself, it’s about starting the habit and letting compound interest work its magic.
Let’s do some quick math: If you invested just $5 per week (that’s less than a fancy coffee!) over 30 years and earned an average annual return of 8%, you’d end up with more than $32,000! And you’d only have put in about $8,000 of your own money. The rest? That’s the power of compound returns, baby!
Of course, $5 alone won’t fund your retirement. Financial experts typically recommend saving around 15% of your pre-tax income in retirement accounts. But small investments can be a great supplement to your main retirement savings.
6 Smart Tips for Small-Dollar Investors
Ready to put your Abe Lincoln to work? Here’s how to maximize your mini-investments:
1. Start With Your 401(k) Match First
If your employer offers a 401(k) match, prioritize getting every penny of that free money before using investment apps. It’s literally free money!
2. Increase Your Investments With Every Raise
Start with $5 if that’s all you can afford now, but commit to investing more whenever your income increases. Try allocating 25-30% of each raise toward your investments.
3. Watch Out for Fees (They Can Destroy Small Investments)
Fees that seem tiny can actually devour small investments. If you’re investing $50 and paying $1 monthly fee, that’s a 24% fee over a year! Look for apps with no monthly fees or keep your fees under 1% of your total investment.
4. Choose Fractional Shares of Good Companies Over Penny Stocks
Instead of gambling on penny stocks, buy fractional shares of established companies or ETFs. A great starter investment is an ETF that tracks the S&P 500, which gives you exposure to 500 major U.S. companies in one purchase.
5. Invest Consistently
Dollar-cost averaging (investing a fixed amount regularly regardless of market conditions) is a winning strategy for long-term investors. Setting up automatic $5 weekly investments helps you avoid emotional decisions and potentially lower your average investment cost over time.
6. Don’t Invest Your Emergency Fund
Before you start investing, aim to have at least three months of expenses saved in an emergency fund. This protects your investments – you don’t want to be forced to sell investments at a loss just because your car broke down!
Best Apps for $5 Investments
Several investment platforms now cater to small-dollar investors. Some popular options include:
- Robinhood: Offers commission-free trades and fractional shares
- Acorns: Rounds up your purchases and invests the spare change
- SoFi: Allows investments as small as $1 with no commission fees
- Stash: Lets you start investing with just $5
- Public: Offers fractional shares and a social investing community
Each has different features, so check out a few to see which best fits your style. Most importantly, look for platforms with no monthly fees that could eat away your small investments.
Real Benefits of Starting Small
I’m not gonna lie – investing $5 won’t make you rich overnight. But starting small has some major advantages:
- Low-risk learning: You can learn how investing works without risking much money
- Building the habit: Creating the routine of regular investing is half the battle
- Overcoming fear: Many people never invest because they’re intimidated. Starting small breaks that barrier
- Time in the market: The sooner you start investing, the longer compound interest works for you
Common Questions About $5 Investments
“Can I really make money investing just $5?”
Yes, but don’t expect to get rich quick. The real value is starting the habit and letting your money grow over time. Even small amounts benefit from compound growth when given enough time.
“What should I buy with my $5 investment?”
For most beginners, an S&P 500 index fund or ETF is a great first investment. It gives you instant diversification across 500 major U.S. companies.
“How often should I invest $5?”
Consistency is key. Setting up automatic weekly or monthly investments, even small ones, tends to yield better results than trying to time the market with larger, occasional investments.
“Will I pay taxes on my $5 investments?”
If your investments earn dividends or you sell for a profit, those earnings may be taxable. However, with very small investments, the tax impact will likely be minimal. Many investment apps provide tax documents to make filing easier.
My Personal Take
I started investing with just a few dollars years ago, and it was one of the smartest financial moves I’ve ever made. Not because those specific dollars made me rich, but because they got me in the game. I learned how investing works, made some mistakes with small amounts at stake, and built confidence to invest more as my income grew.
The hardest part of investing isn’t figuring out what to buy—it’s simply starting. And $5 is enough to start.
The Bottom Line
So, can you invest $5 in stocks? Absolutely! Thanks to modern investment apps and fractional shares, investing small amounts isn’t just possible—it’s becoming the norm for many people.
While $5 alone won’t fund your retirement, it can be the first step in building wealth over time. The most important thing is to start, learn, and gradually increase your investments as your financial situation improves.
Remember the numbers from earlier—nearly 70% of investment app users are buying stocks for $5 or less. You’re not alone in starting small, and many successful investors began with just a few dollars.
So take that $5 and put it to work! Your future self will thank you for taking that first step, no matter how small it may seem today.
