This article is part of our Better Investor series, in which The Motley Fool goes back to basics to help you improve your returns and be more successful with your investing.
As a small investor just looking to get started with an investing strategy, you may feel like you don't have enough money to make investing worthwhile. But nothing could be further from the truth -- and in fact, there's never been a better time to get started, because you have some great choices that people didn't have just a few short years ago.
Barriers to entry
Go back a few decades, and you practically had to be rich before you could even think about starting to invest. Trading in "odd lots" of less than 100 shares was practically unheard of, so to buy an individual stock, you had to have thousands or even tens of thousands of dollars up front. Multiply that by the dozen or so stocks you'd want to have in order to build a diversified stock portfolio, and you could easily find yourself pushing $100,000. Moreover, you could find yourself paying commissions of $100 or more to buy each of those stocks.
That's why the rise of the mutual fund was so valuable for investors. Instead of needing a six-figure lump sum, you could get diversified stock exposure with just a few thousand dollars. And although annual fees came out of your returns, the cost of funds paled in comparison to stock commissions.
But now, exchange-traded funds give you the same convenience of buying a stock with the diversification of a fund. And in particular, ETFs available from brokers that offer them at no commission make a great first buy for new investors.
Why ETFs?
The nice thing about commission-free ETFs is that they've become so widespread. From Firstrade to Scottrade, Fidelity to Vanguard, TD AMERITRADE to Schwab
At the same time, you don't have to settle for subpar ETF offerings. Many of those brokers have rolled out an impressive array of proprietary in-house ETFs, while some have partnered with well-established ETF industry players in their own right. Many of BlackRock's iShares ETFs are available through Fidelity, and TD AMERITRADE offers more than 100 funds from multiple vendors including iShares, State Street
The best thing is that with no commission, you don't have to worry about how much money you have to invest. If you want, you can just buy a share at a time. There's no pressure to wait until you have a large chunk of cash available in order to save on commission costs.
Two ETFs to start with
So which ETFs make the most sense for new investors right now? I want to leave you with two ETF ideas.
First, I'm a big fan of dividend stocks. The Vanguard Dividend Appreciation ETF
To counterbalance those stocks, though, you'll want to look at bond exposure. iShares Barclays TIPS Bond
Jump at the chance
It's great to have an opportunity to put your money to work from day one. Commission-free ETFs accomplish that, with a great combination of accessibility and flexibility that make them ideal for so many investors, even if you're making your first investment. Don't let fears of an inadequate checkbook keep you from starting to invest today!
Stay tuned throughout our Better Investor series and get the advice you need to succeed with your investments. Click back to the series intro for links to the entire series.
Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.