Getting started in investing can be daunting — and even more so if you're starting with modest funds. (See also: The Only 4 Things You Need to Do to Start Investing)
For starters, finding good investments with a low minimum is challenging. And costs such as sales or transaction charges and annual maintenance fees can easily erode returns on relatively small investments. For example, while $10 in annual charges associated with a $10,000 investment makes an impact of just .01%, a similar transaction or maintenance fee on a $1,000 investment lowers your return by a full 1%.
Fortunately, though, you can invest relatively small amounts of money without paying transaction or maintenance fees — and it's easy to get started.
1. Buy Shares of Your Favorite Stock Through Loyal3
Loyal3 offers a way for you to invest as little as $10 in certain well-known companies at no charge. Rather than buying a certain number of shares, you specify the amount of money you want to invest in a particular company's stock, and Loyal3 completes the transaction on your behalf.
If you are investing small amounts of money, it's likely that you will purchase a portion of a share (aka fractional shares). For example, if you buy $100 worth of Google when the shares are trading at $500 each, then you'll own .20 of a share. Over time, however, you could accumulate full shares if you regularly invest $50-100 monthly in a certain stock.
Typically, you can't buy a fractional share through a traditional brokerage firm, and, even if you could, stock trading costs of $4.95 to $9.95 would ruin your returns. So Loyal3 offers an unusual service by combining customer orders and trading in batches. This method permits partial-share purchases and keeps costs down but does prevent you from buying or selling at a specific price.
Investing at Loyal3 is most suited for those who want to accumulate shares of their favorite companies. For example, you can buy shares of Electronic Arts, GoPro, Starbucks, Facebook, Kohl's, and more. For a complete listing, visit the firm's website.
2. Buy a Horizon Motif at Motif Investing
Motif Investing allows you to purchase specially designed portfolios comprised of up to 30 stocks or ETFs that adhere to a theme or motif. The firm offers a catalog of professionally developed motifs along with ones created by individual investors from its community. Examples of motifs are stocks of companies engaged in producing wearable technology, businesses with high levels of cash flow, and firms that offer software as a service.
The company recently introduced a line-up of no-fee motifs consisting of ETF model portfolios, which are designed according to principles of asset allocation. These Horizon motifs represent various time horizons and risk tolerances. For example, you can invest in a Horizon Motif: 15-Year Moderate indicating an investing time horizon of 15 years and moderate tolerance for risk.
Typically, the minimum investment in any motif is $250 and the cost to buy and rebalance the portfolio is $9.95. However, you can purchase shares of asset allocation model motifs at no cost; rebalancing is also free. Note that you must buy the motifs as designed; any changes, such as the elimination of one of the ETFs or a change in weighting, will generate a fee when the motif is purchased or rebalanced.
3. Buy Shares of Commission-Free ETFs at an Online Broker
ETFs or exchange-traded funds are comprised of a basket of securities such as stocks and bonds. They may be market-index ETFs that contain shares of all broadly traded U.S. stocks, sector ETFs focusing on an economic sector such as finance or healthcare, or another combination created by fund companies.
Similar to a stock, the price of an ETF fluctuates based on the underlying value of its securities and market demand. Shares of an ETF may be purchased or sold at your brokerage firm, generally for the cost of a stock transaction. For example, you can trade stocks and ETFs at Schwab for $8.95. However, certain ETFs are available commission-free at Schwab and other brokerages.
Most online brokerage firms publish a list of commission-free ETFs and allow you to search for commission-free ETFs when building a portfolio. For example, you can find offerings through Schwab ETF OneSource and Fidelity's Commission-Free iShares ETFs; or specify "commission-free" when filtering selections on ETF screeners like this one at TD Ameritrade. Note that these lists are subject to change and you may be charged an early-redemption fee if you sell shares of certain ETFs soon after buying them.
To invest, place an order for the number of shares you can afford based on current pricing. For example, if you have $1,000 to invest, you could buy 22 shares of a Schwab U.S. Broad Market ETF (SCHB) when this ETF sells for $45.00 (22 x $45 = $990).
Purchase No-Transaction-Fee, No-Load Mutual Funds
No-transaction-fee, no-load mutual funds with initial investment minimums of $1,000 or less are available at many online brokerage firms. Find such mutual funds using screening tools with advanced search functions.
For example, Schwab's screener allows you to choose "minimum investment" as a screening criteria (under Portfolio Management & Fees) and specify a range of $0 to $1,000 for Basic, IRA, or Custodial accounts. Using this method, you'll find many of the firm's proprietary funds, such as Schwab S&P 500 Index Fund (SWPPX), available for a starting investment of just $100.
Similarly, E*Trade's mutual fund screening tool allows you to choose funds with no-load and no-transaction fees as well as account minimums of $0 - $500 and $501 - $1000 for initial investment amounts. Search results indicate that Blackrock International Index (MDIIX) is among its no-load, no-transaction-fee funds and is available for a $1,000 initial investment and $50 additional investment.
Note that many mutual funds have lower minimums for investors who automatically purchase a minimum of $100 worth of shares on a monthly basis or hold investments in IRAs and custodial accounts. Check fund details for fees and minimums.
You can easily get started in investing at no cost with as little as $10 per month with Loyal3, $250 with Motif Investing, $40 or so in commission-free ETFs, and $100 - $1,000 in no-transaction-fee/no-load mutual funds. Don't let having modest amounts of money keep you from building wealth right now.
Have you invested a modest sum? How'd you do?
