9 Ways to Invest on a Small Budget

Have a close encounter with Wall Street.

Perhaps you've tried to break the pull of Planet Low Budget to invest in something -- anything -- and felt like you were bowled over by a blinding light, as in "Close Encounters of the Third Kind."

If so, take heart: Cary Guffey understands that simile like no one else on Earth. Once upon a movie time, he played that iconic 5-year-old kid in the doorway in Steven Spielberg's blockbuster film. And today, he's a financial advisor with PNC Investments in Birmingham, Alabama.

"Life happens and as soon as you invest every dime you have, all four tires blow out," Guffey says. "Or the fridge quits. Or your kid breaks the neighbor's window." (Or the garage falls down, thanks to a gale-force blast from an alien spacecraft.)

Whatever the calamity, low-budget investors can balance between emergency cash and emerging opportunities that employ a bargain-basement approach. Read on to learn nine ways to make the most of your limited investment dollars.

Just start.

That may sound all too obvious, but consider how many diets get dashed or New Year's resolutions are broken before they ever get off the ground. "The most important thing is to make the investment automatic, either through your employer's payroll deduction or by setting up an automatic investment through a fund company's website," says JoAnn May, principal of Forest Asset Management in suburban Chicago. "Start small, but the important thing is you have to start."

Get help.

Just as the Internet can't be trusted for its gossip about flying saucers, it's dangerous to lean on less-than-reputable financial authorities. "In my experience, the types of information targeting do-it-yourself investors is confusing, inconsistent, often biased and sometimes downright fraudulent," says Scott Goble, managing partner of Sound Accounting, an accounting and financial advisory firm in Chattanooga, Tennessee. "I recommend one seek a financial planner willing to help build an initial portfolio for a reduced fee. You may even find one to help you get started without charge."

Take your company's 401(k) match.

The limited budget investor absolutely should take advantage of any company retirement program, especially if there is a match, Guffey says. "Let's say that the company matches dollar-for-dollar up to 3 percent. If you put in 3 percent of your income, you have a 100 percent return on your money even before the funds are invested."

Tap your tax refund.

Let's see, what should we buy with Uncle Sam's hefty check? An SUV? A dog? An electric dog polisher? How about ... your first investment? "Most of us celebrate by using the refund to buy a new gadget, pay down debt or go on vacation," says David Twibell, president of the Custom Portfolio Group in Englewood, Colorado. "While there's nothing wrong with that, try taking half of your refund next year and using it to invest in a good company or mutual fund." That way, your monthly budget stays intact while you begin your investment act.

Get rid of high-interest credit cards.

Sometimes, finding money to invest is just a matter of seeing things differently. Credit cards with double-digit APRs can put you on a hamster wheel where minimum payments barely nibble at the balance. A smart way to pay them off is to take advantage of the many 0 percent introductory offers card companies are floating these days. You'll pay the balance off faster, sometimes with lower payments -- freeing up money to buy stock, mutual funds and more.

Buy exchange-traded funds.

Since their debut in the early 1990s, ETFs have had many points of appeal, including their freedom from trading costs and tax efficiency. ETFs can track an asset group [such as an index fund] or a given index [such as the Standard & Poor's 500 index]. "Mr. and Mrs. Empty Pockets could redirect a small percentage of their earnings to an ETF that gives them broad diversification and lower internal costs," says Derek Peterson, CEO and founder of Terra Tech and a former vice president with Morgan Stanley.

Use automatic withdrawals.

Here's where psychology comes into play, as the money you don't see is easier to invest than the dollars you do. "Some mutual fund companies and custodians offer the opportunity to invest small amounts on a regular basis via monthly withdrawal from a bank account," says Roger Wohlner, head of the Chicago office of Asset Strategy Consultants. "For example, Fidelity allows auto purchases of $200 into an IRA account via this method."

Try MyRA.

This new tool from the U.S. Treasury is a no-excuses way to get a retirement account going. There are no minimums to start or to contribute per month. "The plan is simple, safe and affordable," says Bruce D. Vandegrift, vice president and wealth advisor with Rockford Bank & Trust of Rockford, Illinois. "You can contribute whatever you can afford. Their balances earn a guaranteed rate with no investment risk and there are no fees." You can save up to $15,000 through this program -- more than enough to use it as a stepping stone to a traditional IRA and stock market investments with higher growth.

Find $50 a month.

We won't get into that tired cliché of how many Starbucks (ticker: SBUX) mochas that equals, or six packs of beer: You do the math. But once you extract the equivalent of $1.67 a day -- vending machine chump change -- you're in a position to go somewhere. "The majority of online investing platforms accommodate low-minimum initial investments," says Tom White, a financial advisor and the founder of iQuantifi, an online virtual financial advisor. "For an average person, investing in an index fund such as the S&P 500 is a great, low-cost way to invest in a broad range of companies." And if you have enough left over to buy stock in that coffee conglomerate, so much the better.