Investing on a Coffee Budget

You might think you need a big chunk of cash to make investing worthwhile, but even small amounts can go surprisingly far. If you contribute consistently – whether weekly, bi-weekly or monthly – this simple habit could add thousands of dollars to your net worth. Here’s how.  

How small amounts grow over time

Let’s start with a simple example: putting away $25 per week. At the end of the year, you would have $1,300. That’s a start, but that money has the potential to be worth even more. Rather than letting those funds collect dust in your account, let’s say you put them to work by investing in a balanced fund that ends up averaging an annual return of 7 per cent.

Of course, a return of 7 per cent a year is not guaranteed. Markets rise and fall, sometimes returning more and sometimes less. But for our illustration, let’s use that 10-year annual return rate to see how investing $25 a week can add up.¹

Assuming you follow the $25 a week approach consistently and continue to see an average investment return of 7 per cent, at the end of 30 years, almost three quarters of your portfolio would come from investment growth, rather than your contributions.

“The real secret is consistency, not timing,” Dimitri Busevs, President & CEO of RBC Direct Investing, said in a recent “Ask Me Anything” on Reddit. “You can start with whatever amount feels manageable in your budget, automate it and let compounding do the rest. That approach is what actually works.”

The benefit of starting early and being consistent

Investing small amounts is now practical and simple using new tools such as GoSmart by RBC Direct Investing.

“We launched GoSmart to meet new and aspiring investors where they are today,” Busevs shared in his Reddit AMA, adding, “This product is laser-focused on helping you get started early and build the right habits through recurring investing.”

Here’s how it works: You can start, pause and resume recurring investments in one of four all-in-one commission-free ETFs. You can also set weekly, bi-weekly or monthly contributions from your RBC bank account to your GoSmart account. When you have enough to buy a share of your selected ETF, those funds will automatically be deployed to make the purchase on the date you’ve selected. At the time of writing, the share prices of the ETFs vary from $26 to $41 per share.

Many people think they need a large lump sum to start investing, but even a little goes a long way. Making small weekly, bi-weekly or monthly contributions will help you get into the habit of saving and can act as an investing foundation to which you can add lump sums or higher deposits over time.

At some point, you could even consider upping your contribution to $50 or $100 a week to grow your savings even faster.