How to Invest $1,000 or Less

            Sometimes people get it in their heads that you need to be a Rockefeller to invest. Nothing could be further from the truth. Over time, consistently investing small amounts adds up.

            Even saving $20 a week for retirement is better than doing nothing. This sounds like chump change, but at a 5% annual real rate of return, an investor would have $36,100 more than they would otherwise have in 20 years. In 30 years, the figures for 5% and 10% returns are $72,600 and $188,200, respectively, and in 40 years, the figures are more dramatic: $131,900 with a 5% return and $506,300 when $20 per week is invested to earn 10%.

            So, what are you waiting for now?

            Here’s how to jump start your investing program with $1,000 or less.

             First things first

             You don’t want to get ahead of yourself. Before you begin investing, make sure you have enough money set aside for emergencies, says Craig Lemoine, assistant professor of financial planning at The American College.

           You want at least three to six months of living expenses in an accessible account such as a savings or money market. “Investments in bonds or stocks risk and fall, they can be quite volatile over a short period, and are no place for emergency savings,” he adds.

            Go straight to the source

           Contact companies directly and participate in dividend reinvestment plans (DRIP). Shares of stock can be purchased directly from companies who participate in DRIP plans and any dividends are reinvested to buy future shares. This way you bypass brokers and their commissions.

           There are many major corporations that offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest $20 or more at a time. “Companies like Disney, Walmart and Exxon Mobil all offer such programs. The great thing about these programs, are the very competitive fee structure and the ‘cruise control’ element to them. You buy the stock in a lump sum purchase or you can set it up to make monthly purchases for a very small amount. It’s a great way to build a long term investment portfolio without having to micromanage things,” says Ori Pagovich, managing partner of Gotham Financial Services.

           DRIPs are for those who want to make little steps frequently to build their financial future. Once you sign on, you can set up an automatic payment plan so you don’t have to buy a full share each time you make a contribution.

           Get started in mutual funds

           Find a fund that will let you start with $50 a month, suggests certified public accountant Steve Levey. Fund families like Vanguard and Fidelity are a good place to start. “I suggest index funds, small, medium and large, half in each portfolio,” says Levey.

         Another strategy is to get started with a balanced fund that invests both in fixed income and equity securities. “In this way, the new investor has some exposure to both sides of the investment world and can read the prospectus and maybe get a better understanding of both types of investment products,” says Alan Rothstein, a certified public accountant. He says that fund families such as Dodge & Cox, T. Rowe Price, and Fidelity offer balanced funds.

          “Factors such as your time horizon (when you’ll need your money), risk tolerance, required rate of return and tax status will dictate the percentage of stocks and bonds in the investment,” says Robert Standish, vice president and a financial planner at BPU Investment Management.

           Ideally, stick with no load funds, so you avoid paying a sales commission.

            Whatever route you decide, one of the best ways to continue growing your money is set up an automatic investment plan where a set amount goes into the investment directly from your checking or other account. “This way you don’t have to think about it and it’s a way of forced savings that is automatic,” says Rick Fingerman, founder of Financial Planning Solutions.

             Explore individual stocks

            Think about your favorites: be it cell phone provider, bank, hotel, restaurant, clothing brand or whatever. Which products and services are a big part of your life? Start there. Go to the company’s website and elsewhere to gather more information to begin evaluating whether you want to invest.

            Simply put, buy what you know, like and understand.

            Sharebuilder.com allows you to purchase individual stocks one share at a time. “Consider buying five large company stocks with the initial $1,000 investment and adding to the positions over time. Company size, sector and balance sheets are great tools to use when evaluating your initial purchase,” says Lemoine.

           You can also open an account at a discount broker like Scottrade or Charles Schwab. “Go with one or two stocks to start. This should be money you can afford to lose. Consider it your financial education costs. Better to start small and learn. Most people have some gains and some losses and learn a lot,” says Christine Moriarty, a certified financial planner with MoneyPeace.

           Earn while you learn. Go to BetterInvesting.org and invest in an individual membership or start an investment club, advises Deborah Owens, author of A Purse of Your Own: An Easy Guide to Financial Security. “Learn how to research stocks using the stock study guide that is the blueprint tool that investment clubs use,” she adds.

            Check out exchange traded funds

           Exchange traded funds (also called ETFs), do not have minimum investment levels. Purchasing an ETF that contains a blend of stocks and bonds will generally have less risk than a portfolio comprised entirely of stocks, says Lemoine.

           An ETF mirroring the Dow Jones Industrial Average or S&P 500 is a good start, adds Pagovich. Keep it simple and focus on things you are familiar with. “Don’t go chasing exotic emerging markets that can be prone to factors that will take your investment on a rollercoaster ride,” he adds.

            Turn to Uncle Sam

            Think too about getting a U.S. savings bond, they can be had for as little as $25, Treasury securities can start with a $100 minimum purchase.

            You can open a TreasuryDirect account. Submit a request to your employer for a direct deposit (or payroll) deduction (an instruction sheet is available in TreasuryDirect, under Manage Direct, View My Funding Options). Your employer will establish a direct deposit deduction from each pay in the amount you request.

           Your deduction is used to purchase a Zero-Percent Certificate of Indebtedness (C of I), which does not earn any interest, but is used as a source of funds to purchase savings bonds with your TreasuryDirect account.

           You may buy a savings bond after accumulating a minimum of $25 or a marketable security after accumulating a minimum of $100 in the C of I, or by scheduling a purchase in advance. The security is then posted to your TreasuryDirect account. For more information, go to www.savingsbonds.gov/indiv/products/prod_tdpayrollinfo.htm.

           Start small, but start.

 

 

 

           

Sheryl Nance-Nash is a freelance writer specializing in personal finance, small business, general business and career issues. She is a former reporter for Money magazine and former staff writer for Yo ...read more

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