You Don’t Need Deep Pockets to Invest

I often hear from people who want to invest on their own, but they tell me they don’t have the $3,000 or $5,000 or $10,000 to get started.

That’s when I get to deliver some great news. You don’t need four or five figures to start investing on your own. You can get rolling for as little as $50 or $100.

For instance, the TD Ameritrade discount brokerage does not have an investment minimum for opening an account. Charles Schwab will waive its $1,000 minimum to open an account if you agree to an automatic monthly deposit of at least $100.

Once you open an account you can then invest in exchange traded funds (ETFs.) There is no investment minimum on an ETF, you simply buy as many shares as you can afford. For example, if an ETF has a share price of $42, your $100 would buy 2.4 shares.

ETFs are great for getting started without a big lump sum investment. By comparison, many terrific index mutual funds require you to make an initial investment of $1,500 to $3,000. If you can afford that, great. But if not, ETFs are the way to go.

The brokerages will even make it easy for you to avoid the typical sales commission that is charged when you buy and sell ETF shares. The brokerages all maintain a list of ETFs they will let you buy and sell without a commission. Once you open the account, choose ETFs that are on the special list of “no commission” ETFs. It’s widely advertised at all the brokerages, and they also have free online tools that can help you find ETFs that are aligned with your investment goals.

You don’t need to own a lot of different ETFs. An ETF, like a mutual fund, is a portfolio of dozens of stocks or bonds. I think you can build a strong starter portfolio with just two ETFs.

If you invest 85 percent or so of your money in an ETF that invests in a broad index of U.S. stocks, and the other 15 percent in an ETF focused on international stocks) you will in fact own shares in thousands of stocks.

And I strongly encourage you to set up an automatic monthly deposit. The brokerage will guide you on how to have money automatically pulled from your checking account and invested in your funds. It is a free service. Invest $100 a month for 25 years and earn an annualized 7 percent and you will have more than $80,000. Over 40 years, you will have more than $260,000. All from starting small.