After years of working hard and earning enough money to take care of your family, it’s time to start investing in your future. As a small investor, you don’t have access to some of the more common investment opportunities, and therefore you need to take advantage of those that are within your reach.

You also face a unique challenge of having to manage risk with reward. While a billion dollar investment fund can afford to take a chance, fail and continue operating, you probably don’t have the same luxury. Losing a significant amount of money could severely impact you and your families future.

For this reason, minimizing the risk to a level that you can tolerate is vital. However, depending on your tolerance you’ll also have a variety of different investment opportunities, some of which will earn you far more than others. Typically, the risk of an investment correlates to the potential reward that it can offer.

How We Chose Our Ratings


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When it comes to investing there are three important factors to consider, the time that it takes to see returns, the expected level of return and the risk involved. As an investor, it’s up to you to balance the three.

However, in general, the best investment ideas for small investors will involve a limited risk with average returns. Depending on your temperament and financial situation, you might decide that it’s best to take on a little risk and to sacrifice some potential returns as a result.

When deciding on the strength of potential investment opportunities we took into account these factors, after extensive research, we were able to determine which paths offered the best value and ROI without excessive risk, keeping in mind a long time horizon to maximize returns.


Top 10 Best Investment Ideas for Small Investors


401k

While you might not think of it as an investment opportunity, your 401k is probably the best way for you to invest your money in your future. Many companies will match the contributions that you make towards the 401k, and therefore it’s wise to maximize the contributions up to at least the point that your employer will match.


Whereas other opportunities will generate returns based on the amount of money that you put in, an employer will often match a 401k. As a result, you’re able to massively increase the potential return of your investment without having to contribute more money.


Even if your employer doesn't match the 401k, it’s often a fantastic way to generate future returns because it’s relatively safe and is typically locked up. By being hidden away with no access to it, it ensures that novice investors don’t panic and pull their money out of their investments.


As a pension plan, payments towards your 401k can come directly from your paycheck. The advantage of this is that it’s all pre-tax, meaning that a dollar towards a 401k is far less costly than a dollar towards a stock for example. When the pension is finally paid out, you will pay tax on the income at that point.


As of 2018, the maximum contribution is $18,500 per year. If your employer is matching up to the full amount, you should ensure that you give the max to your pension plan to get the most significant benefit.


While some people might disagree, the 401k is arguably the best option for small investors. It has relatively low levels of risk and is locked up for decades meaning that it has the time to generate decent returns without you being able to pull the cash out before it’s time.

Roth IRA

A 401k isn’t the only pension plan in town. A Roth IRA is an exceptional type of retirement account that is generally not taxed but which cannot be from your paycheck. As a result, you must fund it with post-tax income but will not have to pay tax income on the payments you get from the plan in the future.


Similarly, any growth in the fund is also tax-free, allowing for the more rapid accumulation of funds. Whether a 401k or a Roth IRA will be more efficient and generate higher returns will depend on the markets and your employment situation.


If your employer is willing to match contributions to a 401k, typically it will be best to maximize these first. After, paying towards a Roth IRA is often the best way to generate additional funds per dollar invested towards your future.


A Roth IRA has all of the advantages that a retirement account. Contributing to your IRA costs very little because of the lockup period, and therefore even small investors can see huge returns, so long as you are willing to wait for years to come to see the fruits of your labors.

Bonds

A bond is an instrument of indebtedness, meaning that you are essentially loaning money to the issuer of the bond. According to its terms, you can expect a return on the capital, as well as interest, over a set time that is on the bond.


While anybody can issue one, almost every financial bond comes from the government. As a result, they are one of the most secure and safer forms of investment because you can be confident that the government will be able to pay back the loan.


Companies issue corporate bonds, and often they offer a much higher level of return, in the form of interest on the loan. However, the risk is also higher, and therefore you must balance your risk level and desired profit rate.


The most commonly recommended form of bond is a T-bond, which is issued by the federal government. Treasury bonds are practically risk-free and therefore can make a great mid-term investment opportunity if you have a very low tolerance for risk.

Certificate of Deposit

While not technically a bond, a certificate of deposit works in nearly the same way. You lock-up money with your bank for a set period and will earn interest for the time that the money is in the account.


The bank will invest this money for themselves and keep the profits, and the losses, while you earn a set amount of profit. For this reason, it’s a very safe method for small investors to see returns and with variable lock-up periods, you have excellent control over how long you want to invest in the account.


For small investors, it’s often best to choose a short period because this means that you can get your money out and use it should you need it. On the other hand, a longer period will usually mean that you can get a slightly higher interest rate and therefore earn more profit.


While a certificate of deposit isn’t as risk-free as a bond like a treasury bond from the U.S. government, it’s relatively low risk. If you are risk averse and looking for a simple investment that will take none of your efforts, a CD is a great option. Of course, the profile of risk will depend greatly on how your bank invests that money.

Index Funds

One of the most common investments that you might have heard of is a mutual fund. This type of fund is where you invest money into a pool of money that will be spent on your behalf by a group of professionals.


An index fund is a specific type of mutual fund which tracks a stock exchange. While you could technically buy the same stocks by yourself, purchasing an index fund is far simpler and quicker.


Tracking the S&P 500, for example, is a great way for you to experience the growth of a market. On average index funds see over 5% growth yearly, which is up to 10x higher than the returns you would see from a savings account.


Index funds are also a relatively low risk because the S&P 500, FTSE and other stock exchanges experience positive growth in most years. Similarly, if it declines then almost all forms of non-secured investment will have experienced negative growth.

Exchange-Traded Funds

An index fund is a type of exchange-traded funds. But not all ETFs are index funds, many track commodity markets, currencies and a variety of other financial instruments. One novelty ETF invests into a large group of airline funds, and therefore you can get visibility to an entire market with a single investment.


ETFs are sold by many investment banks and some brokers, which can give you access to invest in large pools of stocks or commodities. While ETFs are not a simplistic form of investment in the same way that a CD, bond or retirement fund is.


As with any stock purchase, you can enter and exit whenever you want. As a result, you can get your money out whenever you want which gives you access to funds for a rainy day.


ETFs also tend to have medium to good returns over the long haul, making it a relatively good option for small investors who are open to risk. Depending on the ETF that you pick, the risk can vary greatly.


While one ETF tracking airlines or oil could vary each year greatly and is therefore relatively risky, a stock exchange ETF is likely to be less volatile. ETFs are unlikely to be the first choice for your investments, but they are accessible and can offer a good risk-reward profile for small investors.

Buying Individual Stocks

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Purchasing individual stocks is a challenging investment decision, and the risk that you’re open to is far higher than other options because it’s dependent on a single company. Similarly, you can generate huge returns should the stock perform well, pay out dividends and give you an option to sell your position.


For small investors, individual stocks can be a good way for you to open yourself up to potential gains of a company that you support or work for.


Starting a Business

Another one of the best investment ideas for small investors is to use the money that you’ve saved to start a business yourself. There is no better way for you to get visibility to potentially very high returns.


On the other side of the coin, you’ll also have a higher chance of losing everything that you would with an ETF, bonds or retirement fund. If you’re looking for a more hands-on investment, a business has the best potential returns, although over a long period and with unparalleled levels of risk.


Peer-to-Peer Lending

It’s not only banks and large companies that can get into the lending game. With the advent of the internet, peer-to-peer lending has become a fantastic investment opportunity for small investors.


You can look at people looking to raise money to pay bills, consolidate debt or buy a house and choose whether you want to loan them money or not. Over time you’ll be able to earn interest on these loans.


Cryptocurrency

Unless you’ve been living under a rock, you’ll have heard about bitcoin and other cryptocurrencies. According to many experts, they are heavily undervalued. By buying coins, you can earn money from their appreciation by selling them at a higher price in the future. Of course, you’re also open to losses should they drop in value.


Savings Account

Finally, if you want to minimize your risk profile and still have access to your money at all times, you should consider a savings account. While you’ll only get a small amount of interest, it’s better than you could get from a checking account and is likely to be the safest and simplest method of investing your spare money.

How to Decide on the Right Investment


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Deciding on an investment is a highly personal process because it will depend on your risk profile, the need for access to money and desired returns. Overall, pension plans, index funds and CD’s are great options for most small investors:

  • Most small investors want low-risk opportunities
  • Returns are less important than the risk
  • Lock-up time isn’t a problem
  • Access to money may be important

On the other hand, if you’re willing to take more risk for potentially higher returns, starting a business, investing in stocks and buying cryptocurrency can give you a chance at earning more money.

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