Wednesday, December 21, 2011

How to invest $ 20, $ 100 and $ 1,000 (and more)

Got only $ 20 to store at once?
It may not seem like much, but you can use it to buy shares in Intel. Or Johnson & Johnson. Or Harley-Davidson (you rebel). And these are just some of over 1000 options. What if you have $ 100 - or $ 1000? Your options are even greater.
We are not here to tell you where to invest your money. We will not throw a handful of titles on a "buy" list. But what we can tell you is how you can invest your money - the mechanics of investing small amounts, large and medium cash. We can even help you choose a broker.
How to invest $ 20Let's start with $ 20. We will assume that you have already paid your debts on high interest and you have money hidden in a safe place (like a savings account or money market) you can get quickly in case of an expenditure of an emergency. Now you end up with a little extra dough, and you want to start investing for your future.
Is it even worth investing such a paltry sum?
Heck yeah it is! One of the best ways to invest small amounts of money is cheap through dividend reinvestment plans (DRP), also known as the drops. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying shares directly from companies or their agents.
More than 1,000 large companies offer these types of action plans, many of them free or with fees low enough to make it worthwhile to invest as little as $ 20 or $ 30 at a time. Drips are ideal for those who start with small amounts to invest and want to make frequent purchases (dollar cost averaging). Once you are in the plan, you can set up an automatic payment plan, and you do not even have to buy a full each time you make a contribution.
Drips may be one of the safest, most stable way to build wealth in your life (just make sure you keep good records for tax purposes). For more details on Drips, see "What if I can invest small amounts of money every month?"
How to invest a few hundred dollarsSo you removed all the wooden nickels your spare change jar and harvested up to a few hundred dollars. Instead of blowing on snacks and memories of Elvis, consider that investing in an index fund (the only type of mutual funds like crazy). An index fund that follows the S & P 500 is your ticket to an investment that has historically returned about 10% per year.
Some funds require the index as low as $ 250 for you to call you an owner. This low minimum is usually restricted to IRAs (individual retirement accounts). After your initial investment, you can add as much money as you want, as often as you like without additional costs or commissions. You buy directly from index funds companies mutual funds, so there are no commissions to pay a middleman.
If you have a few hundred dollars to start, so it's a great, low-cost way to establish an instant, widely diversified (500 companies!) Portfolio.
How to invest 500 millionOnce you're at $ 500, your investment options open a little more. You can always buy an index fund, and now you have your choice of fund companies that require more initial investment. This freedom will allow you to shop for a fund with the lowest expense ratio.
You should also seriously consider opening a discount brokerage account. You'll want to focus on the account option that best serves your needs, some accounts require a minimum initial deposit, others do not. This means you can open an account with any money you have invested, and start looking and perhaps purchasing individual companies. (Or, if you are in love index investing, you can easily invest in Spiders, an equity investment, as that mimics the performance of the S & P 500.)
The key here is to keep your investment costs (including brokerage fees) to less than 2% of transaction value. So if you intend to add to your position in stocks a few times a month, a drop or an index fund may still be the way to go.
How to invest $ 1,000-PlusWhat can you do with a great? Obviously, with $ 1,000, you can open a discount brokerage account, but look at the rewards if you can pick up an extra $ 1000 per year to add to your initial investment.
Say you have 40 years to retirement. If you start with $ 1,000 and invest an additional $ 1,000 each year, and your money earns 10% per year, so when you're ready to retire at age 65, you'll have $ 532,111.07. That seems worth it for us. If you have earned income, you can set up a Roth IRA, and you will not even pay taxes on that $ 532K when you withdraw. (As always, your mileage may vary.)
Again, even at this level, the key is to keep the cost of eating your income. So make sure that the investment costs (including brokerage commissions, stamps to mail checks, and books that will help you learn how to invest) are less than 2% of the total value of your account With small accounts, which can be a challenge, but with such low commissions offered by discount brokers, it is certainly feasible

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