Jan
25
Frugal Stock Market Choices
January 25, 2007 | 1 Comment
Most of us start or have started small on investments. Most of us aren’t born with $10,000 to invest on an index fund, nor do we have the $50,000 to buy a well balanced portfolio of stocks! More than that, when we all start working we may only be able to invest $100 or $200 a month (gradually increasing it as our salaries and financial stability does). Our goal is to find instruments with low expense ratio — suitable for beginner investors. For people with some money this means an index fund Exchange Traded Fund (ETF) with expense ratios of less than 0.15% plus the $10 buy/sell commission. But for the rest of us, it means that we have more strategic. We do not have the luxury of paying $10 commissions on small amounts of money. $10 in a $100 investment is a 10% loss!!
How do we start investing then? An easy option would be to accumulate money into a temporary savings or money market account and transfer money to a fund when ready. This is a very sensible approach, but I still find a lot of value in getting early exposure to the stock market — learning when you have small ammounts of money can be safer than learning with a lot.
My first suggestion is retirement accounts. Company sponsored retirement plans like the 401k may allow you to contribute, commission free. Fidelity Simple IRA allows you to invest on their funds, commission free, as long as you commit to $200 a month. You still have to choose mutual funds with low income ratios, but you can absolutely choose an index fund that follows the Standard & Poor’s 500, the Russell, or any other of the market tracking indexes.
Then you have the traditional Index Funds like the Vanguard 500. It does require a big initial investment of $3,000 (a good tax refund?), but once you do so, incremental investments are only of $100, commission/load free and with an expense ratios of less than 0.15%. T.Rowe Price also has a Standard and Poor’s 500 based fund, and has lower minimum of $2,500, and in the past have accepted me Automatic Asset Building accounts with only $100 a month and $100 initial deposit. The price for the convenience is a higher expense ratio of about 0.40%.
If you are interested in building a portfolio of hand picked stocks or still want to buy an ETF you have the investment discounters like Share Builder ($4 / trade), where you concentrate on consistently investing into your favorite stocks rather than on timing the purchase to a specific price at a specific time of the day: very frugal for many amounts.
You can certainly be frugal when buying stocks, even if you are starting out.
Do you know of any other frugal ways of starting out in the stock market with low periodic investments?
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[...] Long Term Investments: Once you fund your current life (something not everybody does), and you are on your way to funding your Retirement, you can fund your great achievements. I put it last in your list of things to achieve because you can always buy a house later, but you should not be risking going into debt by not having emergency savings or the money to buy your luxuries, and you should not risk poverty on the years you are least able to produce money. This is money you will not probably use in the next couple of years, and as such you can invest it. A Mutual Fund, Electronic Traded Fund, or Brokerage account could be a good idea. Those with kids may want to think about Educational IRAs or 529 plans. Again, make the transfers automatic so that it requires less discipline on your part and that makes the goal more achievable. You may want to check into the Frugal Stock Market Choices for investment vehicles that may be appropriate for this kind of savings. [...]