How To Invest $200 in the Stock Market

Depending on where one lives, $200 can be a tiny amount of pocket money or a significant portion of monthly expenses. At first glance, it might seem a trivial amount. However, it can be turned into a pretty great future investment by using compound interest or reinvesting dividends. With a $200 initial investment, you can lay the foundation for becoming wealthy through the stock market.

Modest-capital investors tend to believe they should make high-risk moves to get a quick, hefty profit. This is the worst possible decision a rookie investor can make. A monthly 200 dollars invested could accumulate a considerable portfolio in a short time. Not necessarily a spot on Forbes wealthiest, but enough to secure any future goals.

Saving money is never easy, but there are tricks to make it smoother. Pay yourself first after each paycheck by setting up automated payments to a savings or brokerage account. Goals are the centerpiece of investment since they define the strategy for each circumstance. There is no one-size-fits-all solution for doubling your money. High-risk, high-reward investments come with a lot of uncertainty. On the other hand, secure and risk-averse approaches do not provide exceptional profits. One must choose or find a middle ground.

Ignore the mantra that past performance is not indicative of future results, and pretend that $200 was invested in Apple (AAPL) stocks three years ago. From 2019 to 2022 March, the annual return would have been 52%, yielding a tidy $711 after a 255% overall growth. That’s before reinvesting the dividends. The numbers accurately show how far a $200 investment can go. Outstanding portfolios can be built in mere years with regular, monthly contributions during periods of growth.

Compound Interest and Investing in the Stock Market

This is only one of the vast options of compound interest that can snowball your savings into a small fortune with smart decisions, be them as small as a monthly $200. The goal can either be passive income or capital appreciation.

Before committing to such monthly expenses, pay off high-interest credit cards and have at least 3–6 months’ worth of funds set aside for emergencies. Scheduled investments should account for at least 10% of income, but preferably 20-25 %. The time horizon, when the funds are needed next, what percentage of overall capital that investment represents, and risk tolerance affect how it should be invested. 

Taxes (tax-advantaged accounts), the minimum amount required to start a brokerage account (most don’t require a minimum), if the investment serves a specific aim (retirement accounts), and when the money may be withdrawn cost-effectively are all factors to consider when determining where to invest (money can be removed anytime from taxable brokerage accounts).

There are Tax-Free Savings Accounts (TFSAs) that are suitable for both pre-retirement goals and high-earners. For example, registered Retirement Savings Plans (RRSPs) are ideal for pension plans, but they’re a poor choice for pre-retirement. At the same time, simple personal investment accounts provide the most flexibility in terms of buying and selling assets for any personal goal.

Fractional shares are available throughout most brokerage accounts, ideal for small-capital investors. Blue-chip, high-growth, and dividend-paying stocks are the best investments for growth capital in a relatively risk-free way. ETFs, which invest in a wide range of assets, can diversify your portfolio and limit risk.

200 dollars can be used for a long-term investment, traded or invested for the short to medium term, or speculative purposes. Finding a good company with a 52-week or 5-year low stock price and otherwise strong fundamentals is a great strategy. Individual stock investments are usually riskier than index fund investments.