Course 4.2 - Level Up Your Finances: How to Invest Your First $100 (The Right Way!)

Introduction

Over 60% of young adults believe that investing their money is a great way to build wealth, but many aren’t sure where or how to begin. Investing in assets is incredibly versatile, and it requires no budget! Simply starting with a small amount, like $100, is more than enough to develop a promising portfolio. 

This guide will walk you through using your $100 wisely. Once you understand the most valuable investment fundamentals, like 

• diversification, 
• assets with growth potential, 
• and investment strategies, 

you can make smart decisions that minimize loss and maximize returns. Investing for the first time is daunting, but new investors can set off on their path to achieve their financial goals confidently with this information.

Cryptocurrency Research for Budget Investors: Finding Value in Crypto

While Bitcoin and Ethereum are the most well-known cryptocurrencies, a huge range of cryptocurrency and crypto projects serve different use cases. Cryptocurrency is considered digital/intangible assets. Its value is derived from various sources. For example:

1. Crypto operates on blockchain technology, which is decentralized from other financial institutions. This gives users autonomy, anonymity, and security over their crypto funds, making it an attractive investment.
   
   
2. Peer-to-peer transactions through crypto exchanges are nearly instantaneous, have low fees, and aren’t subject to oversight from third parties like banks or the government. 
   ‍
3. Many cryptocurrencies are also becoming more widely accepted as payment methods.

4. Another great part of cryptocurrency is that there’s almost no minimum requirement to join the market; you can start with just a few dollar. 

When looking into investing in crypto, consider the risk factors. Crypto is a relatively volatile asset, with market prices constantly fluctuating due to evolving market sentiments, use cases, global regulations, and more. While this means a high growth potential, it also means higher risk. Avoid investing due to trends (otherwise known as FOMO); create a solid plan with in-depth research and seek advice from financial experts on the matter.  

Building a Diversified Mini-Portfolio with $100

Diversification is a fundamental investment principle. Don’t put all your eggs in one basket.  Even with a small amount, you can distribute your $100 across multiple assets to ensure a diverse portfolio. Dividing your funds allows you to gain more exposure and increase growth potential while lowering risk. 

Micro-investing assets allow you to strategically allocate your funds and create a diverse portfolio. Experts recommend around 25-30 different assets but you can choose less if you prefer. There are several diversification strategies you can use; one is asset allocation. 

• Stocks,
• ETFs, 
• crypto, 
• low-cost index funds, 

and other common investment vehicles fall into their asset classes, and you can split your finds evenly between them

You can also divide your $100 into fractional shares, depending on market cap levels. There are three main categories;

1. Small-cap,

2.  Mid-cap,

3.  and large-cap.

Small-cap assets, like emerging Web3 projects, are riskier and prone to volatility, but can also offer tremendous growth potential. Mid-cap assets are more established but still experience some volatility. Large-cap assets are the most stable, usually having a longer history to analyze, but smaller returns. 

The investment risk pyramid is another useful tool for building a diversified portfolio. It categorizes risk levels based on asset classes. Even within a mini-portfolio, include multiple types of assets.

‍

It’s important to remember that, as the market evolves, your investments will change and need rebalancing. Check your portfolio regularly, and re-distribute your funds to ensure that they remain balanced.

Dollar-Cost Averaging (DCA): A Smart Investment Strategy

This strategy simplifies investing, and it’s a great method for beginners to follow. It automates your investments and follows a regular schedule. Hence, making it easy to plan for. Dollar-cost averaging involves buying assets for a set amount on a set schedule, reinforcing regular wealth-building habits. 

This strategy is also useful for reducing volatility. Buying on a predetermined schedule, you remove the potential of market highs and lows affecting your decisions. One well-known DCA example is a 401k in the USA, where employees invest a percentage of their wage into an account for retirement each time they’re paid. 

DCA Example

Here’s an example. Investor A has $100 and wants to create a diversified portfolio. He finds 20 assets in a range of classes and risk levels, including ETFs, low-cost index funds, cryptocurrency, and stocks. He wants to use the dollar-cost averaging strategy, meaning he’ll invest on the first of each month. Since there are 20 assets he’d like to add to his portfolio, he invests $5 in each, per month. If he wanted to spread the $100 across two months, he could invest $2.50 to each, per month.

Understanding Transaction Fees and Keeping Costs Low

When investing it’s crucial to factor in potential fees and costs. These range from

• transaction fees,
• management fees, 
• expense ratios, 
• and commissions on your returns. 

All these small fees add up over time, reducing the actual profits you glean from your portfolio. Most online platforms and brokerages have unique fees and commission costs, but many low-cost or commission-free options are available. 

Before choosing any platform, brokerage, or application, research their fees. If the platform you’re looking at isn’t disclosing their fees transparently, avoid using them. Try to opt out of any paid services that you don’t want to use, such as management or custodial services. Once you know what costs you’re subject to, factor them into your finances. By keeping costs low, investors can maximize the returns from their investments. 

Conclusion

No matter how small of a budget you currently have, whether it’s $100 or less, you can start investing today! With the knowledge we’ve outlined above, you can wisely invest your first hundred dollars into a diverse range of assets, strategically maximizing your portfolio’s growth. Before investing in anything, conduct thorough research into that asset’s historical performance, use case, risk levels, and growth potential. 

You can also experiment with different investment strategies, such as dollar-cost averaging. Once you’ve begun your investment journey, you can also consider seeking financial advice from experts in the field to build a tailored plan for your individual goals. Congratulate yourself; because by reading this article, you’ve already begun your investing path off on a great step!

Now, head to Walbi and put what you just learned into action! Happy investing!