Investing even small amounts like 20 dollars can generate meaningful returns over time through the power of compound interest. With many online investing platforms offering low costs and easy account setup, investing 20 dollars or any small sum is more accessible than ever. This article explores 5 smart ways to invest 20 dollars for beginners, including index funds, high-yield savings accounts, peer-to-peer lending, dividend stocks and retirement accounts. Investing 20 dollars using these methods allows you to grow your money by putting it to work in the financial markets.
Index funds provide broad market exposure with 20 dollars
Index funds are an excellent way to invest small sums and grow your money over the long run. By buying a fund that tracks a stock index like the S&P 500, you gain exposure to hundreds of companies and the overall stock market. With no minimums on most index funds at leading brokerages, you can invest 20 dollars or less to get started. Over decades, index funds historically return around 7% annually on average, turning 20 dollars invested today into over 70 dollars in 20 years.
High-yield savings let you earn interest on 20 dollars
Another smart option is putting 20 dollars into a high-yield savings account at an online bank. These accounts offer interest rates up to 20 times higher than traditional bank accounts. Leading high-yield accounts pay around 2% APY currently. This allows your 20 dollar investment to earn a few cents per month in interest. While it won’t make you rich, it grows your money safely with FDIC protection.
Peer-to-peer lending puts 20 dollars to work
Investing 20 dollars in peer-to-peer lending enables you to fund personal loans and earn attractive returns. Platforms like LendingClub facilitate loans between individuals looking to borrow and investors like you. Historical returns average around 5-7% for prudent lenders. While higher risk than savings accounts, peer-to-peer lending lets you earn a return with just 20 dollars invested.
Dividend stocks pay you to own them
With 20 dollars, you can buy fractional shares of stocks that pay dividends. These stocks make regular cash payments to shareholders from company profits. blue chip stocks like Coca-Cola and Johnson & Johnson have long histories of dividend growth. A 20 dollar position in such stocks would generate a few cents per quarter in dividends that you could reinvest.
Retirement accounts multiply your money
Contributing just 20 dollars to an IRA or 401(k) retirement account may be the smartest option. Money invested in these accounts compounds tax-free for decades. A 20 dollar Roth IRA contribution invested at 8% annually becomes over 200 dollars in 30 years. Retirement accounts let small investments grow exponentially thanks to decades of tax-advantaged compounding.
Investing small sums like 20 dollars can build meaningful wealth given enough time and smart investing. Index funds, high-yield savings, peer-to-peer lending, dividend stocks and retirement accounts are great options to put even tiny amounts of money to work. Compounding turns small investments into large nest eggs.