Start Investing With as Little as $100

Aug 30th, 2007 by Leonid Shalimov | Scroll down for comments

Got $100 lying around in your checking or savings account? Why not take a shot at investing. You might think “oh no that would be way to complicated, screw that noise.” But let me tell you, it’s a lot simpler than you might think. If you’ve already invested and are actively trading, this article will be overly simplified for you as it is aimed at beginners. If you have never invested in your life, keep reading!

About a year ago I decided I wanted to invest. Why? I’d never done it before and I figured it would be a learning experience. I knew that I didn’t have much but I could put away $100-$200 and try my luck. And I did. I opened up a ShareBuilder account and got to work.

Why did I choose ShareBuilder? Well, I looked at a lot of options and most of them are for hardcore-tons-of-cash-investors, and that wasn’t me. I needed something cheap and easy and luckily ShareBuilder offers $4 stock trading. Now don’t be fooled, the $4 trading is a time system, not real-time. If you want real-time trading it will cost you $15~ per trade. The $4 system you can trade twice every month.

OK, I understand the ShareBuilder thing, now what do I invest in and how should I go about choosing?

Well of course, research is the answer. But before we dive into that, let’s look at what mistakes a beginner investor makes so we don’t make those same mistakes (which will obviously cost us money).

1. Diversify your portfolio, don’t put all your eggs into one basket.

As the old saying goes, it surely applies to stocks. I invested in two stocks when I just started, a couple of shares to AAPL (Apple) and a bunch into SUNW (Sun MicroSystems). I bought Apple stock at around $70 a share and now its up over $130. However I also bought SUNW at about $6.60 and now its down to $5.21. If I had decided to put all my money into SUNW I would be down a decent amount per share.

Now I also made a mistake. I shouldn’t have just gotten into regular stocks, I could’ve put a couple of dollars into Mutual Funds and the like (but at the time I didn’t have enough money to do so) but I decided to stick to my guns.

2. Getting into the market at the “right time” is a myth.

There is no ‘right’ or ‘wrong’ time. According to a classic study by William F. Sharpe, Nobel Prize-winning economist and a founder of Modern Portfolio Theory, a widely followed statistical method for minimizing risk while maximizing investment returns. The study revealed that a person who attempts to time the market needs to be right roughly three times out of four to match the performance of a buy-and-hold investor. Given that the market tends to make major moves in response mainly to unexpected events, that 75% accuracy rate can be a tough mark to hit, as the dismal record of individual investors demonstrates.

3. Stay away from penny stocks if you want to sleep at night.

Not much to say here. Penny stocks are the most volatile trading tool. Sure, you can make a lot of money, but you could also lose all of it. Stick to the ‘blue-chip’ stocks (big companies & fortune 500’s) when starting out to ensure your money will grow (hopefully).

That should cover the beginner mistakes. If you have anymore, feel free to leave a comment and add on.

A quick tip from MSN Money.

For the small-dollar investor, one of the best ways to get started is to buy exchange-traded funds, or ETFs. These are instruments that trade like stocks and mimic the behavior of a variety of different types of assets (stocks, bonds, real estate or commodities) or indexes (S&P 500, Dow Jones Industrials ($INDU), Russell 2000 ($RUT.X).

More to come.

This is the first part in a string of articles I will hopefully be publishing in the near future to try and get young investors on their feet and putting a little money away. Let me know if this article helped you and I’ll be sure to continue the series.

Leonid Shalimov posted this article under Investments, Business Development, Personal Finance on Thursday, August 30th, 2007 at 11:58 am You can follow any responses to this entry through the RSS 2.0 feed. You can leave a comment or trackback from your own site. View Technorati Linkbacks.