6 Reasons to Invest Even Small Amounts. And How to Do It

You might think you have too little money to make investing worthwhile.  Perhaps you also believe that investing small amounts is extremely difficult, if not impossible.

In this text, I will try to dispel these beliefs. At the outset, however, I must admit that they did not emerge without a reason.

Not so long ago, investing small amounts could be full of challenges and limitations. With small amounts, building a reasonably structured portfolio was pretty difficult, and many investments required considerable minimum deposits. As a result, people often opted for unfavourable term deposits and savings accounts. Unfortunately, the popularity of these products remained high until today – wrongly in my opinion.

Thankfully, a variety of products for small investors are now available on the market in 2024. Finax, among others, was created in response to their needs, as were other robo-advisors.

• What exactly is a robo-advisor?
• A robo-advisor is an algorithm that helps you set up and maintain your investments. At the beginning, based on your preferences, investment horizon, experience, or risk tolerance, it will advise you on the right strategy, and then look after your investment throughout its life (e.g. through rebalancing). Thanks to automation, it also eliminates human factor errors.

Why You Should Invest Even Small Amounts

To begin with, let's answer the question: what makes it worthwhile to invest small amounts?

If the first idea that comes to your mind is that these investments won't make you rich quickly... you are probably right. However, there are many reasons why this fact shouldn’t make you give up on your investment adventure. I have identified at least six.

1. Develop Healthy Habits

The key to building wealth is the ability to manage money. However, to acquire this skill (just like any other skill), theory alone is not enough. It takes practice.

If you learn to set aside money, control your spending, and regularly invest a portion of your income, these good habits will stay with you for years. And you will truly appreciate them once you need some reserves due to unexpected life situations (or once you have a higher income, managing to upgrade your regular investment to another level).

2. Gain Experience

Experience is priceless. It's something you can't buy or make up, even when you really need it. You will appreciate it especially much once you already have a larger amount of money at your disposal. Just imagine how difficult it would be to take your first steps with it. You can probably intuitively understand that it's easier to learn from your mistakes when you have 50 euros to spare, rather than 10 or 100 thousand.

3. Find Out What's Right for You

The range of assets you can invest in is extremely wide. So is the long list of ways you can do it. You'll feel more comfortable with some of them, others will appeal to you less. Perhaps some will fascinate you, while others will bring too much stress or fatigue.

By starting with small amounts, you can test different investment styles or portfolios without too much at stake, seeing which option works best for you.

4. The Snowball Effect Works in Your Favour

Even small amounts, if invested regularly, allow you to build inconceivably large amounts in the long term. This is thanks to the magic of compound interest.

This simple principle means that in each successive investment period, you will not only receive interest on your initial deposit but also on the previously earned interest. This means that the amount earned per year tends to increase the longer you invest.

Consequently, your profit can grow exponentially (faster and faster – like a snowball rolling downhill). The earlier you start, the stronger this effect gets.

However, there’s an important note to make. Earnings on many investments (especially in stocks) are not guaranteed to grow constantly each year. Investment markets rise sharply in some years and decrease in others. If you stick to your investment for years, though, the annual increments earned by investing will get larger and larger on average.

That is why we often teach people that investing should be a long-term pursuit that accompanies you throughout most of your life. You can read more about this “rolling snowball” in this blog.

5. Beat Inflation Over the Long Run

Regardless of the size of your savings – whether you have a few euros or tens of thousands in your account - it's very likely that they were earned via hard work and some sacrifices. If you keep them in a bank account, these funds lose their value over time.

After the last few years, the phenomenon of inflation probably doesn't need a special introduction. Inflation does not always take on equally high, double-digit numbers. Most of the time, however, it occurs in the economy. This means that if you stay inactive for several years, you will most likely book a loss.

So even small amounts are worth investing to fight inflation in the short term and beat it in the long term.

6. Average the Prices

As you probably know, the prices of financial instruments are subject to certain regular fluctuations. If you invest smaller amounts on a regular basis, you are thus averaging their purchase prices. Thus, in this way, you reduce the chances of buying assets at a price "top". None of us likes to overpay.

Investing Small Amounts... Not So Easy?

You probably no longer doubt that investing small amounts is simply a "must". However, you are still a long way from turning the need into tangible action. Once you get there, you will probably encounter some challenges.

The first of these may be self-discipline. If you want to start thinking about investing, at the very beginning you need to mobilize yourself to set aside a certain amount of money from your earnings. But this is only half the battle.

The next step will be to make an effort to invest these savings - to do research, ensure that you have the right knowledge, and finally to set up an investment account and regularly buy selected assets with it.

Some investments may also have barriers to entry that are difficult to overcome. For example, the prices of some mutual fund units or minimum investments in some portfolios may be prohibitively high.

Let's assume that you can afford to invest only 50 euros per month. Then it may take several months (or even years) before you can get started with these instruments.

With small amounts, it can also be more difficult to properly diversify your portfolio. At Finax, we often teach investors not to put all their eggs in one basket. Why is it so important?

If you buy shares in one company and that company goes bankrupt, you are left with nothing. If you buy a thousand companies and one of them goes bankrupt, you keep the other 999 in your hand (and there is also a good chance that their performance will pull your portfolio upward).

With small savings, however, we often can't afford to buy many diversified assets, which can result in too much risk in our portfolio.

Finally, when investing small amounts, we shouldn’t overlook the costs. There is a risk that high entry fees, transaction fees or commissions, when added up, will eat up the entirety of our potential returns.

Does this mean that investing small amounts must be difficult? Not necessarily. At Finax, we have adopted the goal of enhancing small investors’ access to simple and profitable investment solutions.

How We Address Challenges for Small Investors

To meet the needs of investors with small savings, we have listed the challenges they face and kept them in mind when designing our products.

Our answer to the difficulty of maintaining self-discipline is automation. All you have to do is set up a standing order to your investment account, and your funds will be regularly invested according to a predetermined strategy. You don't have to remember to make the transfer every time, nor do you have to actively execute the purchase of assets. The robo-advisor will take care of everything for you.

We've also removed the potential barrier to entry, allowing you to invest in ready-made portfolios from as little as 10 euros. That's what you spend on a quick purchase at a discount store or a movie ticket. It is also probably the lowest amount available on the market. You don't even have to commit to regular deposits. You can deposit any amount whenever you wish.

We also pay a lot of attention to minimizing investment risks by offering widely diversified portfolios. For example, our most popular portfolio - consisting of 80% stocks and 20% bonds - includes more than 13,000 different securities. They include large, mid-sized, and small companies operating in a wide variety of industries across 92 countries from around the world.

We also do not forget about the impact of fees on the final investment result. At Finax, you won't find upfront fees, transaction fees, withdrawal fees, account closure fees or performance commissions. We only charge one simple management fee.

And on top of that, we have several discounts and regular promotions that allow our clients to decrease their management fees even further. You can always find them in the Get a Discount section of your Finax profile or by following our blog posts and social media.

Get Started Right Today

A lack of money is one of the most common reasons people mention when asked why they don't invest. You now know that even the smallest amount can allow you to get started. And it's worth doing it as early as possible.

You can invest from as little as 10 euros, so there is no reason to hesitate. We would be delighted if you decided to start this journey with Finax and do everything in our power to not betray your trust.