The Best Places to Invest Small Amounts of Money 3/18/07
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
The Best Places to Invest Small Amounts of Money
“The Best Places to Invest Small Amounts of Money”
Last week, I discussed the importance of starting an investment program even if you currently have a lot of debt and can only invest a modest amount each week or month.
The most important aspect of an investment program is just getting started. Don’t be discouraged if you can only save a small amount. Just by starting, you’ve already won half of the battle. To really make this work for you, set your investment program up on auto-pilot by having money automatically deducted from your paycheck or checking account each month.
If you are starting with a small amount of money, where is the best place for you to invest? Here are two of my favorite choices:
Your company’s 401(k) plan. Most companies offer to automatically deduct as little as 1% of pay to fund your retirement account. Not only do you get the advantage of tax-free growth, but you avoid withholding taxes as well! Also, many companies ‘match’ your savings up to certain limits. This matching contribution often starts at $0.50 to $1 for each $1 you invest. Think of matching as a guaranteed 50% to 100% return on your first year’s investment! This is too good to pass up. You should choose either the ‘lifestyle’ investment option or one or more of the stock investment options or ask your HR department for assistance.
No load mutual funds. No-load means you pay no commissions. Many mutual funds offer low minimum investments for automatic savers. For example, the Oakmark Fund (www.oakmark.com) allows automatic investors to open an account for as little as $500 plus $100 per month. This fund invests primarily in
stocks. If you would like to add an ‘international flair’ to your investing, consider its Global Fund. To view more ‘low minimum investment’ mutual funds go to www.morningstar.com and type ‘low minimum investment’ into the search engine. You’ll find more than 100 choices. U.S.
Now that you have started your investment program (remember, you’ve won half the battle), how do you go about increasing the amount you are investing while avoiding a diet of beans and franks? Last week, I discussed a number of ways to painlessly cut expenses. Review that list and brainstorm some of your own ideas. If you missed the article, go to www.welchgroup.com; click on ‘In the News’ and then ‘Stewart’s Articles’. In addition to finding creative ways to cut expenses, here are the two best ways to increase your investing. First, every time you receive a pay raise or bonus, commit to invest half of it into your investment program. You can use the other half towards improving your lifestyle. It’s a bit like pretending that your raise or bonus was only half as much. Over time, you will find this strategy will produce a ‘multiplier effect’ whereby your investing will grow at an ever increasing rate.
I remember when I first began investing, the amount was so small, I thought it would never make any difference. What I found out was that the habit of investing grows on you and once you begin to see a little success you’ll find ways to get more successes. Before you know it, you’ll have a net worth you are proud of!