My First Foray into Investing

New York Stock Exchange (NYSE)

One of the things I don’t talk about much on this site is investing. The reason being I am not much of an investor at all. I have a 401k where I am invested in some mutual funds but I don’t manage or select the funds I am in. My Wife’s mother is a financial adviser and she chooses the funds and handles reallocation every year. For the longest time I have wanted to get into some type of investing so I can get my feet wet but I have always thought I just don’t have the cash to do it. I convinced myself there was no point in doing it unless I had at least $5,000 to “play” with. When I mean play I mean $5,000 that I could care less if I keep or not. I am still a long time away from that particular goal.

I was listening to the Consumerism Commentary Podcast and I heard the President of Sharebuilder.com talking about their product and investing with it. It is an investment site run by the folks over at ING. I love my ING Direct account so I thought ti would be a good match for me. I don’t know much about buying stocks or Small Cap and Mid Cap companies so it was good to hear them mention they allow trading in Exchange Traded Funds (ETF). In addition to ETF’s they offer no transaction fee mutual funds as well as funds from Vanguard, Fidelity, T. Rowe Price, and Dodge & Cox.

One of the features I like about Sharebuilder is the ease with which you can setup automated investment plans.  You can purchase partial shares of stocks and funds so you can setup automated purchases for a set investment amount. I don’t have a lot of spare cash to invest so here is what I did. I setup automatic transfers from my “blow” account to transfer $50 every two weeks. I then was able to setup an automatic investment to invest in my chosen ETF anytime my account has a balance of $100. Sharebuilder invests on the Tuesday following you reaching your investment threshold. I scheduled my deposits for Monday so I only have $50 sitting idle for two weeks.

I am pretty new to investing and the amounts I am investing are minimal which is going to make it hard to get a decent return. There is a $4 fee for each trade so I am immediately in the hole 4% every month from the get go. This means anything I invest in needs to average a better than 4% return for me to see any benefit from the investment at all. The small amount of money makes it hard for me to feasibly diversify across mutiple fund classes so I opted to go bigger. I am of the mindset that if I am going to invest in the stock market why don’t I actually invest in the market itself. So what I opted to do was invest in in SPY which is an ETF tracking the S&P 500. These are typically referred to as index funds which can track entire indexes like the S&P 500 or NASDAQ (QQQQ) or sections of indexes or stocks. The good thing about indexed funds like this are the lower expense ratios since they aren’t actively managed. The funds are based on the actual index so it isn’t the same game as an actively managed fund.

From what I have seen Sharebuilder does a good job of catering to the idiot investor, me. There are a lot of other features I haven’t had the time to explore but I hope to some day in the future. Right now I am happy to be putting away a bit of cash, albeit a very little bit, someplace other than a “high-yield” online savings account. I would love to get some feedback on what I am doing, I am just now starting to learn about investing so any help or suggestions on how I can improve would be welcomed warmly.

Photo: (epicharmus)

{ 4 comments… read them below or add one }

1 No Debt Plan December 28, 2009 at 9:05 am

As much as I like ING Direct, I don’t like Sharebuilder. That 4% fee is huge. I’d much rather save up $1,000 or $3,000 and invest in a mutual fund with no fee.

But that’s just me!

Reply

2 TheDebtHawk.com December 28, 2009 at 10:51 am

4% is an awful lot. Another avenue to check out is buying stock through dividend reinvestment plans (DRIPs).

Reply

3 Persfinanceguy December 28, 2009 at 11:51 am

Kyle,

You have the right idea but you may want to go about it a little bit differently. These days, a positive investment return is hard to come by and it is quiet detrimental to put yourself in a 4% hole. Your strategy would make more sense if you were investing $1,000/month and paying $4 per trade, but not $100. My recommendation would be as follows:

Open a brokerage account at a discount broker like Scottrade or TD Ameritrade. These brokers offer thousands of no-load/no-transaction fee mutual funds where there is no brokerage fee. You should be able to find an index-tracking mutual fund with a minimum investment of $250. For example, Scottrade offers an S&P 500 tracking fund (American Century Equity Index Fund, symbol: ACIVX). Put your first 2.5 months of savings aside in a bank account and when you reach $250, open a Scottrade account. Invest that $250 in the fund and then make automatic deposits every month into the Scottrade account.

Although you can set up an automatic deposit into the brokerage account, you will have to purchase your shares every month. The beauty of this is that you will not be charged a commission at all when depositing additional money into this mutual fund. As your nest egg grows, you will be able to diversify further into additional no load/no transaction fee funds.

For more, feel free to follow me on twitter: @Persfinanceguy and check out my blog: http://persfinanceguy.wordpress.com/. It is fairly new and I have not exactly covered this subject yet, but under the retirement posts, there are several beneficial ideas that should provide you some assistance.

I hope this helps and let me know if you need additional information, I am happy to help.

-PFG (Personal Finance Guy)

Reply

4 LeanLifeCoach December 28, 2009 at 2:01 pm

If the relative cost is so high, why not only arrange for the investment to be made once every other month? At least that way your costs of investing are cut in half!

Reply

Leave a Comment

Previous post:

Next post: