How To Start Investing With $100 Dollars – Tips And Advice For New Investors
Investing it’s not nearly as tough as most people believe. The key to being successful is finding asset classes that have a tendency to react differently to the economy’s ups and downs. But what do you do if you’re just starting out and have just a few hundred, a thousand or maybe a few thousand dollars to start investing?
Let me show you a strategy for starting and managing a portfolio that needs only a small amount of money. You can start with an investment of as little as $100 dollars, which reduces taxes and transaction fees, and is likely to outperform 90% of mutual funds over the long haul. So let’s say you get a $100 dollars tax refund and want to start investing. The easiest course is to open an individual retirement account at any of the major discount brokers and commit to investing $50 or $100 per month in a mutual fund.
The array of low-cost mutual funds and other instruments out there has exploded in recent years, and I’m going to explain to you how to build a smart, secure and properly diversified portfolio. This method works for building a portfolio with virtually any amount of money, and it’s superb for those starting small. But remember, starting small doesn’t mean it won’t pay off big.
The challenging part is determining which of more than 7, 900 funds is worthy of your money and will be adequately diversified. I have nothing to suggest for this approach, because I haven’t yet found any no-load funds with significant allocations to commodities and real estate.
What I do suggest and follow personally, is building your own portfolio with exchange-traded funds, or ETFs. These are instruments that trade like stocks and mimic the tendencies of a variety of different types of assets (stocks, bonds, real estate or commodities) and are usually designed to track an index, such as the S & P 500, iShares MSCI EAFE Index or Russell 2000 Index.
To be able to make this method work for the small-dollar investor, it’s vital to keep transaction costs as low as possible. I’ve identified only two brokers that have no minimum account size and charge only a little commission for each security acquired: ShareBuilder, at $4 per trade, and Zecco, at $4. 50. It’s worth observing that ShareBuilder charges $9. 95 to sell shares, while Zecco sticks with its $4. 50 pricing for all trades. And after your account value reaches $25, 000 (and it will certainly get there if you stay with it) Zecco will give you 10 free trades a month.
Tip: If you’re able to invest just $100 a month, it would be smart to make a single quarterly purchase of $300, than monthly purchases, so that your trading costs take only about 1. 3% of your investment dollars, rather than 4%.
Regardless of how you do it, however, it won’t take long to build a portfolio that will ride out the market’s ups and downs a lot more efficiently than most.
As time moves on, you’ll find that some of your investments have grown in value while others have lost capital or stayed about the same.
Just for this simplified illustration, let’s suppose that by the end of the first year you’ve invested a total of $1, 000, and let’s say your U. S. stock holdings have increased 30% in value, while your foreign stocks have dropped 5%. Your portfolio is now worth $1, 050. There, on the bottom line, is a $50 profit!
Now you’ve got more than your target of 20% in U. S. stocks and less than 20% in the other asset classes. To bring back your portfolio to its target percentages, you’ll need to sell $40 worth of RSP and buy more of the ETFs that have performed less well to bring them up to 20%, or $210 each. A regular real-world allocation can be something like: 20% U. S. stocks, 22% non-U. S. stocks, 30% bonds, 17% real estate and 11% commodities.
A younger investor with a higher risk tolerance might want to cut down the bond component to 10%, while a retired person with lower risk tolerance might want to increase the bond allocation as high as 50%.
Tip: Bonds tend to lower the overall volatility of a portfolio and mitigate risk, which might be especially important for retirees.
Once you’ve set up your target allocations, stick to them. Succumbing to the temptation to speculate what the next hot asset class will probably be is your surest ticket to underperforming returns. And keep investing through the down markets, especially, because that’s when your self-discipline will be rewarded with higher returns as time goes on.
New Investor: If You Want to Know How to Start Investing With $100 Dollars, Financial Expert Mark D. Poulos Reveals Secret Methods & Strategies For Investing That Will Build Your Portfolio FAST, While Making You Much Higher Returns.
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