Just because you might not have a lot of money to invest doesn't mean that you can't get a good return. Finding a good return can require willingness to invest in a range of different vehicles. You might also need to be willing to lock your money up for a set period of time.
Free Money Now
If your employer offers a 401(k) plan with a match, taking advantage of that match is one of the best ways that you can invest. If, for instance, your employer puts in 50 cents for every dollar that you put in, you're getting a 50 percent return on your investment -- guaranteed. You usually don't need to worry about minimums with a 401(k). Employers typically let you save just about anything -- even a little bit -- from each paycheck, up to the annual limit.
Free Money Later
You can boost your return on retirement savings with a Roth individual retirement account. With a Roth IRA you put in money after you've been taxed, but when you take it out, your money and all of its gains are tax-free, which increases your returns over what you'd be getting in a taxable account. You don't need a lot of money to open a Roth IRA, and an investment house may let you open one with nothing if you agree to have money transferred in every month. A Roth IRA makes any taxable account you put into it a little bit better. If you invest your money at 5 percent in a taxable account and you pay taxes at 25 percent, you'd only get to keep the equivalent of a 3.75 percent return. With a Roth, you'd keep the whole 5 percent. In other words, if you put $10,000 into a Roth account and it grew to $20,000, you'd get to keep $20,000. The same $20,000 in a taxable account where 20 percent of your gains were taken by taxes would net you only $18,000 after subtracting 20 percent of the $10,000 gain.
Leveraging Risk for Return
Taking more risk is one way to get more out of your investments. When investments with risk do well, they generally do better than less risky investments. For example, stocks are usually riskier than bonds, which are usually riskier than deposits in an FDIC-insured bank. Time can help to minimize risk, since risky investments tend to bounce around more than safer ones, and, if you have time, you run less of a risk of having to sell in a down market. For instance, if you have money that you don't plan to touch for 30 years sitting in the bank or in short-term bonds, you could move it to a growth stock fund that has higher risk -- and higher returns.
Promotions and Bonuses
Banks sometimes offer promotional rates on certificate of deposit accounts. If you open an account with a bonus rate, you could get a higher return than you might get on average. According to NerdWallet's August 2013 survey, 30-month CDs were available with bonus rates as high as 2.30 percent, while the average 30-month CD yielded just 0.52 percent. Also look for promotions on bank accounts. Opening an account and setting up direct deposit or doing a few debit card transactions could net you a $50 bonus, which works out to a 50 percent return if you use $100 to open the account.
The Safest Choice of All
Believe it or not, there is a way that you could invest as little as one dollar and get a return of anywhere from 10 to 28 percent per year. Paying off credit card debt may be the safest high-yielding investment there is. When you send extra money in to pay off high-interest debt, there's no risk that you won't get your return -- your balance is lower so you pay less interest. Your credit card issuer usually doesn't have any minimum extra payment, so you can start earning the return by sending in just a few dollars in addition to your minimum.
- Forbes: The Big 401(k) Match Mistake
- Morningstar: Low-Minimum Funds Well-Suited as myRA Alternatives
- Investor.gov: Risk and Return
- Investor.gov: Mutual Funds
- Moneycrashers: Best New Bank Account Promotions, Offers & Free Money
- Bankrate: Should You Pay Down Savings
- MoneyChimp: Compound Annual Growth Rate (Annualized Return)
- NerdWallet: CD Bonus Rates Index – August 2013
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.