A comparison guide of small investments by type starting from 1,000 won

In uncertain economic times, many people are concerned about financial stability. Especially with rising prices and sluggish real wage growth, they are seeking new ways to grow their assets. One popular option is various small-scale investment types. With low entry barriers, small investments are widely used by beginner investors with limited capital and experienced investors looking to diversify their portfolios.

Definition and Features of Small-Scale Investment

Small-scale investment refers to investment methods that allow access to a variety of financial products with a small amount of money. Unlike traditional investment methods, it does not require a large initial capital, enabling investors with limited financial flexibility to participate in the market.

In typical stock investing, you need enough funds to buy at least one share. In contrast, small-scale investing allows you to invest only as much as you want, making risk management easier. Compared to investments like real estate, which require huge upfront capital, entry barriers are much lower, making it especially popular among young people eager to start growing their assets quickly.

How Fractional Stock Trading Works

Fractional stock trading allows buying and selling stocks in decimal units, such as 0.1, 0.01, or 0.001 shares.

For example, if a stock’s price per share is 10 million won, traditional methods require that amount. But with fractional trading, you can buy 0.001 shares with just 10,000 won. If the share price is 1 million won, you can invest with only 1,000 won.

Since 2022, major Korean securities firms like NH Investment & Securities, KB Securities, Mirae Asset Securities, Kiwoom Securities, and Hanwha Investment & Securities have introduced fractional trading systems. They pool multiple investors’ buy orders to acquire whole shares and then distribute the ownership in the form of profit-sharing units.

Main features:

• Advantages: Access to high-priced stocks with small amounts, lower average purchase price through fractional buying, practical experience for beginners starting with small investments
• Disadvantages: Difficulties with real-time trading, higher fees than regular stock trading, potential difficulty in executing trades at desired prices

The Value of ETF (Exchange-Traded Fund) Investments

ETFs combine the flexibility of stock trading with the stability of mutual funds. They bundle multiple stocks or assets into a single product that can be traded like a stock, providing diversification benefits.

The core idea is that you can buy and sell pre-constructed portfolios managed by securities firms or fund managers, just like individual stocks. Even if the underlying assets are expensive, the ETF’s overall price can be affordable, allowing small investments.

Main types:

• Index-tracking ETFs: Follow major indices like KOSPI, KOSDAQ (Korea), S&P 500, NASDAQ, Dow (U.S.)
• Sector ETFs: Focus on specific industries such as technology, finance, REITs, energy
• Dividend-focused ETFs: Comprise stocks with high dividends and yields

Since ETFs tend to have lower volatility and risk compared to individual stocks, they are suitable for investors seeking stable, long-term asset growth. They align with strategies aiming for average returns while minimizing principal loss.

Understanding Real Estate Investment Trusts (REITs)

REITs pool funds from multiple investors to invest in real estate and distribute rental income as dividends. They invest in various assets like apartments, hotels, office buildings, and commercial properties.

Unlike direct real estate investment, REITs incur minimal taxes such as acquisition and transfer taxes, and maintenance costs. They offer a way to enjoy stable real estate income without large capital outlays, which is their biggest advantage.

REITs are required to distribute at least 90% of their income as dividends to investors to benefit from corporate tax reductions. This creates a steady cash flow, making REITs a potential second source of income. They tend to have lower volatility than stocks, making them effective for risk diversification and as part of a diversified portfolio for seasoned investors.

Characteristics of Contract for Difference (CFD) Trading

CFD allows trading based on the price difference of stocks without actually owning the underlying assets.

For example, if a stock rises from 50,000 won to 51,000 won, you only need to invest the difference of 1,000 won. The broker handles the actual buying and selling, and you settle only the profit or loss from the price change. This enables investing in high-priced stocks with small amounts, potentially yielding high returns.

Key features:

• Leverage adjustment: Investors can set leverage multiples to amplify returns
• Two-way trading: Both long and short positions are possible
• Tax benefits: Since no actual stock is bought or sold, capital gains taxes can be avoided
• High profit potential: Small investments can pursue significant gains

However, larger trade sizes increase the risk of liquidation. Due to leverage’s double-edged nature, losses can also escalate quickly. If inexperienced with CFDs, it’s recommended to practice on demo accounts provided by professional platforms.

Comparison of Small-Scale Investment Types

Investment Strategies by Investor Type

Beginners should start with ETFs or REITs to build a foundation, then gradually move into individual small-stock investments. Investors with sufficient knowledge and seeking higher returns may consider CFDs.

Middle-aged investors prioritizing capital preservation might prefer dividend-focused REITs and ETFs. Younger investors aiming for long-term wealth accumulation can regularly invest small amounts, employing dollar-cost averaging to lower average purchase prices.

The key to successful small-scale investing is accurately assessing your financial situation, investment goals, and risk tolerance to choose appropriate investment types. Rather than chasing high returns recklessly, a steady approach to asset growth and future preparedness is the wisest strategy.