How You Can Start Your FIRE Journey With Just $25

Something I often hear when talking to people about financial independence and investing is: “I only have $25 [ish] to invest, where should I start?”

I believe that there is no minimum requirement for investing. No matter how small the amount is, it can make a huge difference in the long run! Making your money work for you ASAP is key to starting your journey to financial independence and early retirement.

So this article is going to cover two points - what investment accounts you should be using, and what investments you should be buying within those accounts, so you can start investing no matter how much you have in the bank.

Investment Accounts You Should Consider

Deciding which investment account you should open may seem deceptively simple. After all, there are just two types for your situation: tax-advantaged accounts (401k, Roth IRA, HSA), and non-tax advantaged accounts, which are regular brokerage accounts without tax benefits.

Tax-Advantaged Accounts

These are the investment accounts you should be looking at first. Even with a little bit of money, these accounts can make a huge difference. They protect those small deposits from being eaten up by taxes. Your goal should be to max out your 401k, Roth IRA, and HSA. It will take some time if you’re only adding $25 a month, but it will be 100% worth it.

You also have to think about the order that you invest into these accounts. For more information on which order to invest in multiple tax-advantaged accounts, check out this article/video.

Non-Tax Advantaged Accounts

These are traditional brokerage accounts that don’t have any tax benefits, but they do have fewer limitations than tax-advantaged accounts. The best low-cost brokerage firms we invest in are:

● Vanguard

● Schwab

● Fidelity

If you’re not familiar with these three, check out this video which provides more info about low-cost brokerage firms and how to open an account with them. It takes less than ten minutes to open an account, so there really are no excuses!

How to Open a Stock Account in Less Than Ten Minutes | Start Investing Today

Your Investment Options

I want to talk about five different investments that you can make with some of the above-mentioned investment accounts. Lots of people go to the effort of opening these accounts but don’t actually buy any investments. Don’t make the same mistake! Research these five investments and see if they work for your investment portfolio.

1. Index Funds

This investment type is a small fund that holds a number of different investments, including stocks and bonds. The idea is that it tracks a specific index and performs similarly to it. So an S&P500 index is going to own stock in the different companies that make up the S&P 500, and it’s performance will correlate to the S&P500. There are index funds for the Dow Jones, small-cap stocks, large-cap stocks, etc.

Keep in mind that brokerage companies have their own index funds - so if you’re opening a brokerage account, you should choose a brokerage company that provides a good range of index funds at a low cost. You will be charged an expense ratio based on how much you invest in an index fund, so you want one that is as low as possible.

Some index funds also require a minimum amount to invest. For example, Vanguard’s total stock market index fund requires a minimum of $3000, so with only $25 it won’t be an option. But Schwab and Fidelity both offer index funds with zero minimum requirements.

2. ETFs

Exchange-traded funds are like index funds, in that they track a collection of stocks and securities. The major difference is that you buy it just like you would buy a stock! This means you need to have enough money to buy one share. Some will cost $200, but others will be as low as $25.

But you can also buy fractional shares of ETFs - so if an ETF costs $100, and you only have $25, you can buy $25 worth of that one share. If you want to buy fractional shares of ETFs, Fidelity is your best option.

3. Bonds

There are two good ways to invest in bonds if you have limited funds: you can buy a bond index, or you can invest in a treasury EE series bond, which can cost as little as $25 to get started. I’ve added bonds to this list because people usually want to have a mix of stocks and bonds when they start their investment portfolio, and both these types of bond investments have lower risks than other types of bonds.

The truth is that Amon and I have never invested in bonds, but that doesn’t mean you shouldn’t! It’s part of our personal investment style, but it’s up to you to research further and see if you’re willing to take on the risks involved with investing in different types of bonds.

4. REITs

Personally, I love investing in real estate investment trust accounts, particularly because they pay dividends! REITs are companies that own and operate income-producing real estate. With REITs, you can buy individual stocks, ETFs, and index funds that all focus on REIT companies.

The best thing about REITs, as I briefly mentioned, is that they are required by law to pay out a certain amount of their profits in the form of dividends! If you’re not familiar with REITs, check out our video on why you should consider investing in them ASAP.

5 Reasons to BUY NOW | REITs (Real Estate Investment Trusts)

5. Individual Stocks

Lastly, we have individual stocks. This is usually the first place that people look when they start their investing journey. That’s because investing in individual stocks like Apple and Microsoft is usually the first thing they hear about investing!

I personally don’t think that this is the first place you should start. It takes a lot of research and knowledge to invest in individual stocks, but you certainly can start off with them if you only have $25 to invest. And similar to ETFs, you can also buy fractional shares of individual stocks with platforms like Fidelity.

But I would urge you to consider if individual stocks are the right choice for your portfolio. They can be very risky and they don’t offer a lot of diversification. Investing in something like a total stock market index fund on the other hand offers far more diversity and security.

I personally think investing in all of the stocks on the stock market instead of focusing on one is a better way to build wealth and work toward your FIRE goals, but that has always been my personal preference. At the end of the day, it’s up to you to figure out your own unique investing style, your goals, and what you want your portfolio to look like. Hopefully looking into these investment accounts and investing options will help you to understand what works best for you!