Can I Invest 100 Dollars in the Stock Market?

By: Steven Melendez | Reviewed by: Ashley Donohoe, MBA | Updated August 07, 2019

You can easily invest $100 in the stock market through a brokerage of your choice. You can look for stocks for 100 dollars or less, of which there are many available, or you can invest in a fund that will invest your $100 in stocks. Make sure you understand any commissions and fees involved in buying and selling stocks, since these can take a big bite out of smaller investments. Watch for scams that are sometimes associated with low-priced stocks.

How the Stock Market Works

The stock market allows you to buy and sell shares of companies that you wish to invest in. Each share represents a partial ownership stake in the company. It often enables you as a shareholder to vote on certain corporate decisions and to attend and ask questions at shareholder meetings. It also enables you to receive dividends, which are payments from the company to the shareholder made proportional to how many shares they own.

Typically, investors buy stocks in companies they expect will rise in value over time. Then, at a later point, they can sell the shares to reap a profit. Naturally, essentially no investor will always predict the market correctly, and there is always a chance you will lose some or all of your investment if the stock price drops or even dwindles away to zero if the company you invested in goes bankrupt.

Brokerages and Commissions

You generally buy stock in a company through a stock brokerage. The brokerage will manage your holdings in stocks, distribute dividends to you, potentially pass on notices from the companies in which you've invested and enable you to buy and sell shares as you see fit. Many brokerages can also help you with other investments, including bonds, mutual and index funds and certain bank products like certificates of deposit.

Many, but not all, brokerages charge a fee called a commission when you buy and sell shares. Typically you will be charged the same commission no matter how many shares of a company you buy or sell in one transaction. Some brokerages may charge other fees for particular services, like access to investment advisors or analyst reports. Some offer all trades free from commission, while others may offer free trades under certain circumstances.

Different brokerages have different levels of commissions and other fees. If you're only investing a relatively small amount of money in the market, it's particularly important to understand these fees and shop around for a good commission structure for your needs, because commissions can heavily eat into your profits on small trades.

If you find yourself dissatisfied with the fee structure or the services at your brokerage, you can consider opening an account at another brokerage and either using it for new stock purchases or transferring your assets from your old account. Generally, you can work with the brokerage where you wish to move your account to transfer assets from the old account without having to sell stocks and buy them anew, which can incur fees and tax liabilities.

Stocks for 100 Dollars?

Plenty of stocks are available for $100 or less across all different sectors of the economy. Many investors will be able to find a stock in that price range that they imagine will do well, which makes investing $100 in stocks an easy feat. Of course, if you do end up with your heart set on a stock that sells for more than $100, you can always keep the money in the bank until you have enough to buy the share that you want.

Look through stock price listings at a brokerage website or on a financial website or publication to find stocks that meet your particular price criteria. Keep in mind, though, that many companies that are doing well and seeing stock prices rise will use a stock split, where each share is replaced with a larger number of new shares at a lower price, in order to keep their shares affordable for everyday investors.

You'll typically want to look at factors about the stock beyond its share price. Look at the annual and quarterly reports the company has filed with the Securities and Exchange Commission and take a look at what analysts and financial writers have been saying about the stock. Check news reports about the company for any controversies or issues that might be a sign of trouble to come and see how the company is doing compared to peers in its industry.

Penny Stocks and OTC Stocks

Stocks with low share prices are sometimes referred to as penny stocks. The term nowadays typically refers to stocks whose shares trade for $5 or less.

Penny stocks can be an attractive option for investors with only a bit of money to put into the market thanks to their low prices. They can also turn out to be quite lucrative if a company turns out to do well and its share price rises dramatically. But they can also be risky investments, since many companies with low share prices are either struggling businesses that have fallen on hard times or fledgling startups that may fail to get traction.

Many penny stocks are what are called over-the-counter stocks, meaning they're not listed on the major stock exchanges like the New York Stock Exchange or Nasdaq exchange. You can still usually buy and sell them through brokerages and get recent stock quotations, but it can take longer to find a buyer or seller, meaning prices may fluctuate when you go to buy or sell shares in these companies. There's sometimes less information available about OTC stocks than those listed on the major exchanges, but you should still use whatever data you can find to research any potential investments.

Watching Out for Scams

Penny stocks are often used in investment scams known as "pump-and-dump" scams. In these scams, a fraudster will purchase shares in a low-priced stock and then tout it to investors without disclosing that he owns the stock. Often this will be done through financial websites or email newsletters with listings such as "top 10 penny stocks" or "stocks to look out for."

When new investors buy into the stock, the price will rise, allowing the fraudulent investor to sell his holdings. Since there was no actual basis for the price to rise beyond the fraud, the price will typically then drop, causing the new investors to lose money. Fraudsters don't necessarily have to have connections to the company to benefit from a pump-and-dump scam.

To avoid falling for these types of scams, only take investment advice from trusted sources. Try to avoid relying on information from anonymous newsletters, online forums and similar sources and stay with advice from trusted analysts and what you can glean yourself from a company's own reports.

Pump-and-dump scams aren't limited to stocks and have also popped up in cryptocurrency markets in recent years as those investments have gotten more valuable.

Mutual Funds and Index Funds

Whether you have a little money or a lot of money, you can also invest in the stock market indirectly through mutual funds and index funds. Traditional mutual funds rely on human investment experts to pick stocks and other investments that they make using the money of people who have contributed to the funds. Some fund managers earn good reputations for their successful stock picking and they can then command higher fees from investors.

Index funds, on the other hand, invest in stocks based on some sort of formula. Many invest in all the stocks on a common financial index, like the S&P 500, the Dow Jones Industrial Average or the Nasdaq index. Some follow indexes geared toward particular sectors of the economy, such as energy, retail or real estate. They charge lower fees than traditional mutual funds, since they don't need as much human intervention.

You can invest in mutual funds through the companies that operate them. Many index funds are exchange-traded funds, meaning that they carry ticker symbols similar to individual stocks and can be purchased by using that symbol with any broker. Some brokerages may also offer their own index funds.

However much money you have to invest, shop around for a fund with a share price in your price range that invests in something that you think has the potential to do well. Make sure you understand the fee structure and how it compares to other investments.

Stocks and Your Taxes

When you sell a stock at a profit, you generally must pay tax on the amount the price went up. If you held on to the stock for a year or longer, you can pay tax at the federal long-term capital gains rate for your tax bracket. For most taxpayers, this is 15 percent, although some will pay 0 percent and some will pay 20 percent. If you hold on to the stock for less than a year before selling it, you must pay tax on any profit at your ordinary income rate, which is the same rate you pay on income from work and bank interest.

The long-term capital gains rate is typically lower than the ordinary income rate, so if you're planning on selling stock before a year is up, it's worth considering whether to hold on to it for a few more months, especially on a small investment where the taxes might make a big difference to your dollar gain.

If you sell stocks at a loss, you can claim a capital loss on your taxes. Capital losses can offset capital gains and a limited amount of ordinary income. They can be rolled into future tax years but not previous tax years. Depending on your stock holdings, you may want to time sales at a loss and sales at a gain to minimize your tax burden. Consider consulting with an accountant or tax expert for guidance.

Retirement Plans and Stocks

In some cases, you may want to buy stocks or put money into stock funds through a retirement plan offered by your employer such as a 401(k) or 403(b) or through a retirement plan you open for yourself, such as an individual retirement arrangement, or IRA.

The mechanics of buying stock or investing in a stock fund through such a plan isn't too different from investing from a normal brokerage account. The difference lies in how the money you put into the account is taxed. Typically, you can put money into employer-sponsored accounts directly from your paycheck without having to pay tax on it until you withdraw it from the account, and you can claim a deduction on your taxes for money that you put into an IRA.

If you only have less than $100 to put into a retirement account, make sure that the account does not charge any kind of fee for having a low balance.

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Resources (3)

  • Building Wealth With $50: The 50 Best Dividend Stocks to Buy Without a Broker; Mkemo London
  • Investing Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less; Mike Piper
  • Managing Retirement Wealth: An Expert Guide to Personal Portfolio Management in Good Times and Bad; Julie Jason

About the Author

Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.

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