Investing with Just $50 a Month

I know the problem. You'd like to invest, but the amount you have to commit sounds like chump change when average big-company stocks cost $70 a share. What's worse, advisers like me tell you to diversify your assets. How many ways can you split the $50 you have to invest?

The answer is plenty. First, open up a brokerage account and set up an ''automatic withdrawal program,'' so your brokerage account can automatically receive the $50 a month. All that usually takes is checking a box when you open your account, which authorizes your brokerage firm to withdraw the amount you specify from your checking account each month. Much as with contributions to a 401(k), you'll never really feel it because the cash never runs through your fingers. If you do that for several months, you'll have plenty to invest in whatever stocks and funds you choose.

Any of the following brokerages will let you open an account with $50:

Check out Gomez.com to review these brokerages.

Starting Out Diversified
If you're looking for long-term growth (a good strategy for beginning investors), check out low-minimum index mutual funds. What are those? They are funds in which you can invest in small denominations, made up to mirror the performance of stock indexes such as the S&P 500 or Dow Jones.

The S&P and Dow indexes represent a cross section of large-company stocks. The Russell 2000, another stock index, represents a cross section of small-company stocks, also known as small caps. Years of research by professors of behavioral finance (you didn't know there was such a thing, huh) show that, over time, infrequent trading through index investing outpaces trading in most individual stocks and even savvy day trading. Because these index funds rise and fall with the market, and the market has been climbing steadily since the 1930s, they are an excellent foundation for your investment portfolio.

Selecting an Index Fund
Start with a S&P 500 fund (where fund managers use your money to invest in large well-known companies that are in the S&P index), add a Russell 2000 fund for small caps, and then go for an international index such as the MSCI-EAFE (Morgan Stanley Capital International -- Europe, Australasia and the Far East) index. Most big-name mutual fund brokerages, such as Vanguard, Fidelity and Charles Schwab & Co., offer those kinds of funds. Vanguard also has a variety of bond index funds that differ by maturity dates.

Direct Investing
The challenge to mutual fund investing is that even though a brokerage may not require a minimum balance for you to open an account, the funds you want may have a minimum investment requirement. You can usually dodge the minimum investment requirements by buying shares in a retirement account, such as an IRA, or by agreeing to an automatic investing plan.

Stock-Piling Wealth
With an investment foundation in index funds, you may have a hankering to buy individual stocks. Can you do that on only $50 a month? You bet. You can save to buy 25 to 50 shares of the stock you want with automated withdrawals from your checking account to your brokerage account, just as you can with mutual funds, or you can buy stock direct.

More than 500 companies allow you to participate in their ''dividend reinvestment programs.'' You buy a single share of stock directly from the company, and the dividends are reinvested to buy more fractional shares. Pick your company, then call their stockholder's information department to learn about their programs. You can also designate a monthly additional contribution by automatic withdrawal. The amount they take out need not be the price of one whole share, since you can accumulate fractional shares. Fannie Mae (the mortgage lending corporation) lets you invest $10 a month. Exxon allows purchases for IRAs.

The Big Picture
When someone tells me she has $50 to $100 to invest per month, I'm never completely sure what she means. Is this speculation money, over and above a hefty contribution to her 401(k) and other qualified plans? Is this nest egg money she has allocated to ensure a secure financial future? Or is this the only investment she can scrape together because of perpetually low income, heavy debt or poor alimony payments?

In the first instance, it's time to get aggressive and plug up the holes in your overall plan. Check out the international indexes of emerging countries and go with those indexes. Find one high-tech, small-cap stock and buy a few shares.

If it's nest-egg money, stick to the indexes. Use a money market fund to accumulate the minimums and get going.

And if you are living hand to mouth, no investment will substitute for a better job or a clean credit rating. Spend the money on yourself. Take a few courses so you can get that higher-paying job. Spend a few bucks on a better work wardrobe so you can dress like someone who works where you'd like to work. If poor speech or grammar has cost you at job interviews, take speech lessons. Invest in yourself first; it's the best $50 investment in the world.

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