Lux Investing
How can I invest in individual stocks with only $25 per month?
I already invest in a 401(k), IRA and mutual funds, but I want to start buying some individual stocks, or exchange traded funds. I'm just starting out, so I don't have a lot to invest. I've heard Sharebuilder is a good website to use, but on Money magazine's website, it said that it wasn't the place for a $40/month investor. Apparently the money that you spend to buy the stocks offsets most gains that a stock could earn (if you're investing very little). Does anyone have any other suggestions how to invest this small amount of money in stocks? Is Money magazine wrong in stating that you won't make money? I doubt they are, but just curious if anyone else has another view point.
Public Comments
- If you save up enough to open an account, etrade is good. Another good way to buy individual stocks without fees a little at a time is through a DRIP, or a Direct Investment Plan. Most allow you do it without fees, and since you're buying over time you have the benefit of dollar cost averaging. A good explanation of DRIPs and a listing of participating companies can be found at: http://www.directinvesting.com/DRIPLearningCenter/index.cfm http://www.directinvesting.com/moneypaper/companies/nofeeco.cfm Good luck!
- Well, you won't get rich quick but it's a start for building a portfolio. With that amount go for good solid stocks. Anything else and you'll lose your money. Sharebuilder is good. Etrade, Ameritrade (watch the fees). You could start an investment club with friends where you all put in $25 a month and share the profits or losses. Just starting and learning is a good thing...
- When you open an account with E*Trade or Scott trade, they will sometimes give you a certain number of commission free trades. That will allow you to buy a few shares at a time.
- The DRIP (dividend reinvestment plan) and company share purchase plans are your answer. Many companies offer this, and the company's website and investor information section will give you more details. For example, if you wanted to invest a monthly amount in GE (called GE Stock Direct, see link below) or any other company offering a similar plan, you need to have at least one share in the company. Some don't even require you to have that. After that, you can sign up for the company stock purchase plan and buy as little as $25 worth of shares at intervals of your choice (different companies have different minimums, some may have a small transaction fee). The company will issue stock to you (most will give you fractional stock as well) and credit it directly to the account you had your one share in, without any brokerage or transaction costs. A DRIP works differently. Any dividend issued by the company is issued in stock (again with fractional amounts if applicable) and also credited to the account you hold your shares in. If you have a paper share certificate, the company will hold the shares for you and issue you a regular statement with your updated balance. Bank of New York Mellon handles these services for most US companies, and also allows you to directly purchase their stock from a single website (see link below). You needn't go to each company individually to set up a direct purchase plan. This way you can slowly build up your holdings with companies you like, without paying brokerage and fees. this is an excellent strategy for the long term.
- This is true. Even if you participate in penny stocks (certainly NOT recommended for beginning investors), you'll find with $25 purchases you'll just end up paying fees. E-Trade for instance charges around $10.00 a trade. So if you have $25 to invest, you either end up with $15 in stock or actually paying $35. How many stocks would you normally buy that had a 20% premium? This is not accurate but I hope the point is made. Even if the trade costs $5, you'd either be starting with $20 or actually investing $30. Either way that means you have to make 20-40% return on investment before you even break even! (you get your $25 back) I would equate this to running a marathon with two 20 pound blocks tied to your legs. Pretty slow off the start and sluggish the whole distance. It makes more sense if you only have $25.00 to invest, save it up to a substantial amount before you buy any stock. That $10 fee is easier to absorb if your investing say $1000 (1%) vs. $25 (40%). There are many other reasons that this is a bad idea, but I figure this one reason alone is probably the only one you really need :) Best to put that $25 in a savings account until there is something substantial, or invest in a mutual fund.
