August 11, 2020
The Pros and Cons of Investing Small Amounts
Investing may seem to many as an exercise that requires not just a fair amount of research, but also a great deal of money. Rarely do we hear about investing small amounts as a key component for building a robust portfolio. This is true even as many financial experts stress the importance of a balanced set of investments, without placing too much emphasis on one company, industry, or financial product.
What, then, are we supposed to do if we want to start small with our investments? After all, any amount of money put into a portfolio piece should be primed to drive a return, even if the holding itself isn’t of a staggering sum. Investing small amounts may not get as much attention, but it is just as crucial a strategy as other tactics and techniques that come with building a well-balanced portfolio.
One of the keys to savvy investing is, among other things, finding the right blend between seeking out new opportunities, and being willing to pay the opportunity costs that come along with them. Every investment provides a new chance to diversify, strengthen, or grow your portfolio. Knowing the pros and cons of investing small amounts of capital can help you determine which opportunities are right for you and your goals.
The advantages of investing in small amounts
Starting small can be a great investment strategy, particularly if the opportunity is new or unfamiliar. This can be true for just about any asset class as well—be it stock in a company you haven’t heard of, an index fund in a sector where you haven’t already invested, or even an investment class that’s new for your portfolio.
By starting off with a small investment, you’re able to test the waters without becoming overexposed to risks you may not be able to foresee and respond to quickly. Think of making small investments in terms of opportunity cost: you could use the money set aside for a new investment and place it in a part of your portfolio that is tried and tested. You may make a return on the money you’ve allocated toward better-known entities, but you may also have missed out on a better yield if you had branched out and set aside cash to go toward a new opportunity.
Increasing your confidence and knowledge in a variety of investment opportunities lets you benefit from a wider variety of strategies, asset allocations, and diversification options. Depending on your investing experience, this may be as straightforward as venturing into new sectors, or as complex as finding alternative investments if the price is right.
Another benefit of investing small can be finding opportunities that are right-sized to the amount of capital you’re willing to put up. Taking a stake in an investment that might offer a better return than stock or fund ownership is an enticing offer for many investors—but often at a high cost of entry. Whereas some funds and investment vehicles require higher minimum investments, others come with more modest requirements. FarmTogether’s minimum investments start at $15,000, compared to most bond purchase limits that can be anywhere from $25,000 to $100,000 (or more).
The drawbacks of investing in small amounts
Investing small amounts of cash means you have less to lose if your investment goes bust—but it also means your potential gains will be smaller as well. This can be a good thing, of course, if you’re risk averse or are in favor of a slow and steady approach to investing. But it may also mean you’re not getting as much of the upside as you could be with a bigger allocation.
For example, if you were to invest $2,000 into a stock worth $10 per share, which then rose to $20 a share, your investment would double in value. The same obviously holds true for a $20,000 investment: but in this scenario, you’d be looking at a substantially larger return on your investment. The same largely holds true for other asset classes as well, albeit with management fees and other considerations excluded.
In some cases, it may also exclude you from being able to participate in certain investment opportunities as well. Several mutual funds set minimum contributions that require more capital than some investors are willing to part with—typically starting at $25,000 or more as their minimum. Participation in hedge funds can cost several times that much. Thinking small may be well-intentioned, but it might also close a few doors in the process.
Alternative investing with small amounts of capital
Not every high-yield investment comes with a steep cost of entry, however. Some financial services companies may offer an opportunity to reap dividends on unique investment opportunities without requiring a major amount of capital to get started.
FarmTogether provides accredited investors with a range of investment opportunities starting at as little as $15,000. Our team sources and manages farmland, scouring for ideal investment opportunities with farmers across the country. In return, FarmTogether investors are given an opportunity to realize dividends on their investments, reap the rewards of increasing farmland appreciation, and take part in the future of sustainable agriculture in the United States.
Best of all, the platform also makes it easy to take control of your investments in FarmTogether holdings through an intuitive online dashboard. You can also take the reins of how you invest as well: be it as an individual, a self-directed IRA, corporation, limited liability corporation, or a solo 401(k). With FarmTogether, you can invest as much or as little as you want, all while seeing the immediate impact of your allocations through industry-leading financial technology.
Deciding whether you want to invest small or large amounts comes down to your level of comfort and appetite for risk. Every investor, and investment strategy, is inherently unique. If you’re looking to take the plunge, but don’t necessarily want to take an outsized stake in a new venture, FarmTogether offers a unique value proposition for accredited investors looking for the next big thing.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.
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