Investing with Just $50
By
Ann Coleman (TMF AnnC)
March 14, 2001
Q. What's a simple way to go about investing in the stock market on a regular basis with just $50 to $100 every month? Do I go through a broker? -- P.D., via email
A. Just $100 a month? Just? That's $1,200 a year. Give yourself some credit! In fact, give yourself a big hand because you'll be $1,200 a year ahead of an awful lot of folks. Keep that rate of savings up for 40 years or so and you could have three-quarters-of-a-million bucks salted away, easy.
How easy? Well, it can be easy, or it can be real easy. Real easy would be opening an account with a mutual fund company that has a low minimum and letting them pull the $100 out of your checking account every month automatically. It doesn't come much easier than that. Set up the account as a Roth IRA with your contributions automatically popped into an index fund, and let time and the U.S. stock market do their thing.
If, over the next 40 years, the stock market grows like it has for the past 40 years (a period that included three wars, fire, flood, famine, plagues, earthquakes, high inflation, Republicans in charge, Democrats in charge, and the Summer of Love so it's not like we're being overly optimistic here), your $1,200 per year would be worth about $700,000 by 2041. Total dollars out of your pocket? Just $48,000.
Of course you could go through a broker. That's easy, just not real easy. But brokers charge you to invest your money while a good, no-load index fund just puts your money to work. When you are investing small amounts, frequent commissions, even from a discount broker, will put a serious crimp in your returns unless you can find one that doesn't charge for mutual funds.
An index fund is not only easy, it's smart. Considering that most professional money managers can't beat the long-term return of index funds, there doesn't seem to be much point in trying to pick your own stocks when you are just starting out. Learn to pick stocks by all means -- hey, that's what the Fool is here for! -- but not until you've gotten your feet wet and built up a solid base.
Once you get started, think about scraping up a few more dollars each month to send to your index fund. You can invest up to $166 a month without going over the contribution limit for a Roth IRA. Sustain that level of savings for 40 years and your account could be worth over a million bucks.
Although setting up an account as a Roth IRA is something of a paperwork pain, here's the payoff: No federal income taxes on that account -- ever. You don't even have to mention the Roth on your tax return, not when you put the money in, not when you take it out after age 59 1/2. Now that's easy!
What's Next? Open an IRA online in three easy steps in the Fool's IRA area.
Ann Coleman is a lazy investor who admires index funds because she would just as soon never read another company annual report. Nevertheless, she manages to own quite a few stocks which you can see listed in her personal profile. The Motley Fool is investors writing for investors.
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