Money Talks, So Should You

Q&A: How do I invest on a shoestring budget?

Deborah Frazier
by Deborah Frazier, NAPFA

The earlier you get into the habit of investing, the better. Compounding is one of the greatest forces we have. Maybe you want to get started, but only have $100. You might believe that it is not enough to fool with. It is enough.

There are several ways to make the $100 grow. A dividend investment program, known as a DRIP, is a wonderful way to get started. You can buy one share of a company such as Johnson & Johnson directly with the company and all dividends are reinvested into company stock. You can add to the account whenever you have the money available.  

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The disadvantage of this program is the cost basis when you decide to sell. You need to keep all end-of-the-year statements so that you can calculate the cost. Also, beware of fees imposed and minimum initial dollar deposits. There are hundreds of well-known companies that offer DRIP programs. Google "DRIP" to find a list.

You can also open a discount broker account, such as E*TRADE or Scottrade, and deposit $100. Once the money is in your account, you can buy one or two shares of a stock you like. These brokers will keep track of your cost basis for you. For example, you could buy three shares of Facebook. Both of these discount brokers have information for you to view on stocks you are interested in.

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I recommend that you begin with companies that you know and whose products you regularly use. Think of your daily routine: brush your teeth (Colgate), eat lunch (McDonald's), use your computer (Intel). You get the idea. Whenever you have some extra cash, deposit it, and when enough is accumulated, buy another stock. Remember, have your dividends reinvested. 

Before you know it, you will have a portfolio, and the bonus is that you will learn about investing without risking too much money. Good luck!

 

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Deborah Frazier has been a fee-only financial adviser since 1986. Frazier is a member of the National Association of Personal Finance Advisors (NAPFA), a fee-only professional association and a Dimespring knowledge partner.