INVESTING — How to start when you don’t have a lot of money

"I'll start investing when I have real money to invest." How often do you hear that phrase? It is easy to understand why people think it takes millions of dollars to start investing. But what if you could learn how to invest with a little money? Yes, you can start investing and building wealth with less money than you think. The key is to start somewhere and to understand the type of investment products that will allow you to start small. Additionally, you have to get into the habit of putting aside money and doing it frequently and consistently. The sooner you start, the better! Here are three ways to get your investment journey started.

Start with a High-Yield Savings Account: Saving and investing are like siblings, you cannot really do one without the other. In order to invest money, you may first have some saved up. One of the main reasons that people do not invest is that they do not have the lump sum to invest. Many investment products require a higher minimum amount than, say, saving. The key is to save enough funds to begin investing, which will take much less time than you may think. You can do it in very small steps. If you have never been a saver, you can start by saving $5,000 or $2,000 a week, which can turn into $260K or $104K a year, respectively. These weekly amounts are not a lot of money, and the interest on your savings account certainly is not impressive, but you get the idea — it will allow you to accumulate enough funds to start investing. Ensure you put these funds into an account that is separate from the account you use for your everyday expenses. Then set up a recurring payment in your online account or a standing order so that the funds are deducted from your account automatically each month. Ensure, as well, that the account is not linked to your debit card, so you will not be tempted to dip into it. After a year, when you accumulate enough cash, you can move these funds into some actual investment products and earn better returns. Consistently saving, too, will allow you to add money to your investment account each year, and some investments may even allow you to add those funds directly each month. As your income grows, the amount you put aside each month should grow too.

Invest in Mutual Funds or Unit Trusts: Do not be deterred if you plan to start investing with a small amount of funds. Rather than putting your money into individual assets like bonds that require higher minimums, consider investing in a mutual fund or unit trust. A mutual fund or unit trust is a pooled investment, which means you put your funds together with other investors, and a professional manager determines how to invest the money based on the investment objectives of the fund. Mutual funds and unit trusts help you diversify your investments and give you access to assets you might not otherwise be able to invest in. Here are three opportunities available if you are starting out small — the NCB Caribbean Equity portfolio (E Fund), NCB Cap Income Optimizer (iO), and the monthly NCB CAPFactor. The NCB CAP E Fund invests in a portfolio of carefully selected local and regional stocks managed with the goal of providing you with capital appreciation and enhanced returns over the long run, and you only need to start with a minimum of J$50,000. On the other hand, the CAP iO Fund is ideal for goal-driven investors who are targeting medium-term investment objectives, such as higher education or purchasing a home. The NCB CAPFactor also allows monthly contributions as low as $10,000. These options show that mutual funds and unit trusts are an affordable way to start investing with small amounts in a well-diversified portfolio.

Invest in Stocks: The stock market is generally a good balance between risk and return, even if you are investing small amounts, and while investing too much of your portfolio in a single stock or a few stocks can be risky — it can pay off in the long run if you spend your time to select solid stocks. You can start by investing in already listed stocks on the Jamaica Stock Exchange (JSE), Initial Public Offerings (IPOs), or Additional Public Offerings (APOs). Of note, you will need at least J$25,000 to purchase stocks through NCB Capital Markets; however, investing in IPOs allows you to start investing with smaller minimum amounts. When you buy stocks, you are essentially buying an ownership stake in a business. Therefore, it is crucial to select stocks with solid fundamentals with your broker's help and avoid following trends such as timing the market or market speculations. However, putting all your money into stocks is not recommended if you do not have a very aggressive risk appetite.

Can you start investing with little money? Absolutely! Everyone has to start somewhere. No matter how small you feel your savings are, learning how to invest is a vital part of building wealth and working towards financial freedom. If you do not have a lot of money to invest at first, that is OK. Just get into the habit of saving and work your way to investing. Overtime, the money you started with, small as it may seem, can and will generate returns whether you put it in a high-yield savings account, the stock market, mutual funds, or unit trust or split it among them. Do not hinder your journey to financial freedom by thinking you do not have enough to start. The key is to start investing and build wealth with what you have now, and as you do this, you will begin to reap the benefits of having your money work for you.

Nadine Thomas, assistant vice-president – Private Wealth, NCB Capital Markets Limited (Photo: Paul Mullings)

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