Every now and then I have “brilliant” ideas that I am eager to set into action. These ideas can range from building a garden to making money with CashCrate. My most recent “brilliant” idea was to start an investment account with some of the money I get for my personal spending money. This money is typically used for gas, eating out, and anything else I just feel like I want to buy. My wife and I both have our own separate accounts for this money so we each do with it as we please. What I thought was a great foray into investing turns out to have been an under thought out, poorly executed, attempt at getting started with investments.
It turns out I really didn’t think through the actual cost of my investment choice, I was called to task on this by my readers and it has altered my plans considerably. The best advice I got was from Personal Finance Guy, I have reprinted his comment below:
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)
While it was part plug for his blog his advice makes great sense. Why am I blowing $4 of my investment cash everytime I invest when I could be getting it done a lot cheaper. I looked into No Transaction Fee (NTF) funds a little bit more and it turns out they are a great way to get started in investing. Sharebuilder actually offers NTF funds but the minimum to get into them is $1,000 which is a little steep for my liking. ScottTrade on the other hand allows you to buy into the ACIVX fund for a mere $250.00 as PFG stated. The catch is you have to have at least $500 to open a ScottTrade account.
This clearing of the mind as it were as given me new goals for implementing my first investment strategy. I am going to open a SmartyPig account with a goal of saving $500.00. Once I reach my goal I will withrdraw that $500 and use it to open my investment account at ScottTrade. I plan on doing some additional research on the NTF Funds available to me between now so I am a little better prepared to make my real first jump into investing.
That is a great advantage to having a goal and working towards it. The time from when you set the goal to when you achieve it will allow you to extra time to think through your endgame.