Investing even a small amount like 40 dollars in stocks can be a great way to get started in the stock market. With fractional share investing offered by Fidelity and other brokers, you don’t need thousands of dollars to build a diversified portfolio. In this article, we’ll explore some of the best ways to invest 40 dollars in stocks using Fidelity.
The key is to start small but think big. 40 dollars may not seem like much, but with compound growth over time it can grow into a sizable nest egg. The hardest part is just getting started. Once you make that initial investment, it gets easier to keep contributing more on a regular basis. Fidelity makes it easy to automate your investments, which helps remove emotion and builds discipline.
When first starting out, focus on building a solid foundation with broad market index funds or ETFs. Fractional shares allow you to spread the 40 dollars around to buy slivers of stocks like Apple, Microsoft, Amazon and other major companies. Over time you can add individual stocks, but index funds help reduce risk. Don’t forget to reinvest dividends to turbocharge your returns.
With a little bit of effort, 40 dollars can be the start of a great investing journey using Fidelity. Compounding and dollar cost averaging will work their magic over years and decades to grow your wealth.
Leverage fractional shares to build a diversified portfolio
One of the best ways to invest a small amount like 40 dollars with Fidelity is to use fractional shares. This allows you to purchase slivers or fractions of a company’s stock. So instead of needing to save up enough to buy a full share, you can invest any amount you want.
For example, let’s say you want to buy some Apple stock which is currently priced around $150 per share. With fractional shares, you could invest just $15 of your $40 to buy 0.1 shares of Apple. Do the same with other major companies like Microsoft, Amazon, etc.
This approach allows you to spread your money around to gain exposure to several different companies and sectors. Over time, those fractional shares will grow with the share price.
Fidelity, along with platforms like Robinhood and SoFi Invest, offer fractional share investing. This removes one of the main hurdles for beginning investors and allows great flexibility no matter your budget.
Automate your investing through Fidelity to stay disciplined
One of the keys to successful long-term investing is consistency and discipline. The easiest way to ensure you regularly put money to work in the market is to automate your investing.
Fidelity makes this very simple to do through their website or mobile app. You can set up automatic transfers from your bank to your Fidelity brokerage account on a schedule that works for you, whether weekly, monthly or per paycheck.
Then you can configure your account to automatically invest that money into stocks, funds or ETFs that you designate. This takes the emotion and temptation out of the process so you stick with a regular contribution schedule.
Over time, dollar cost averaging through automated investing allows you to smoothly build your portfolio by buying more shares when prices drop and fewer when they rise. Automation along with fractional shares is a powerful combination for new investors.
Focus on broad index funds early on
When first getting started with a small investment amount, it’s generally best to stick with broad market index funds or ETFs. This provides instant diversification across sectors, company sizes, investment styles and geographies.
Fidelity offers a number of zero fee index funds and ETFs. For example, FZROX provides exposure to the entire U.S. stock market. FZILX covers international stocks. And FXNAX invests in bonds.
Start by allocating your 40 dollars across 1-2 broad stock index funds and potentially a bond fund. You can then add in fractional shares of individual companies you like.
As your portfolio grows over time, you may decide to add specific sector funds, dividend stocks, real estate funds and other asset classes. But keep it simple early on.
Reinvest dividends for exponential growth
While 40 dollars alone won’t produce much in the way of dividends, any stocks or funds you buy will likely pay some level of dividends over time. Make sure to take full advantage by reinvesting those dividends to turbocharge your returns.
For example, the S&P 500 has historically paid about a 2% dividend yield. If you invested your 40 dollars in an S&P 500 index fund, after one year you might have $0.80 in dividends paid. Reinvesting that $0.80 would allow you to buy an additional fractional share.
In year two, you would then earn dividends on the original investment of $40 plus the $0.80 reinvested. This compounding effect leads to exponential growth over decades. Turning on dividend reinvestment is simple to do through Fidelity’s website.
Investing even small amounts like 40 dollars in stocks can pay off over the long run thanks to the power of compounding. Fractional share investing through Fidelity makes it easy to spread the money around and build a diversified portfolio. Focus on broad index funds, automate your contributions, and continually reinvest dividends. Turning 40 dollars into a lifetime of wealth just takes a little bit of effort.