On our Investing Beginners discussion board the other day, a new Fool named ljdean asked a vexing question related to his recent subscription to our Motley Fool Stock Advisor newsletter service:
I will only be able to invest $200 a month. What does everybody feel would be the best for me to do? Should I split it evenly between the two [monthly] picks?
He received a bunch of replies with some good advice. Permit me to share some snippets:
Community member Quillnpenn offered some suggestions that I agree with and some that I don't. For one thing, he said, "If you have a stock in mind, find its price and buy at least one hundred shares." I'd counter that there's no need to buy 100 or more shares of anything, especially if you don't have the means for it. If you have $1,000 to invest and you're interested in a $48 stock, you can buy 20 shares, for $960, plus the commission cost.
He added, "I would recommend finding stocks over the price of seven bucks. Anything below, you're wasting your time, energy, and monies." This makes a lot more sense to me. Here in Fooldom, we've long advised people to stay clear of "penny stocks," those trading for $5 or less per share. They're typically tiny, unproven companies that dastardly sorts can manipulate. But sometimes they're biggish firms that have just fallen on tough times. Even in this latter situation, though, such as with Lucent (NYSE:LU), JDS Uniphase (NASDAQ:JDSUD), and Sanmina-SCI (NASDAQ:SANM), it's often good to wait for the company to prove itself enough to pull out of penny-stock territory.
Next, Quillnpenn said, "If you don't have enough bread in your Treasury chest or under the Sealy, keep saving monies at your current pace until you have enough to buy the stock plus the commish." This is very good advice. There's often no need to invest every single month. If you accumulate $200 per month, you'll have $1,000 to invest every five months. Even with $600, if you pay a $12 commission, you'll be paying 2% in commission costs, which is the maximum that we advise. (Community member jrr7 said that he tries to keep his commission costs below 0.5%.)
Finally, he added, "You must buy the stock [via] a limit order and not at a market order. It is your money; you're in charge, and you demand to buy the stock at your price, and don't be foolish and give it away." I'd counter that in many cases, market orders are just fine. They're what I use most of the time. But take a little time to learn more about the two main kinds of orders.
Matt1344 explained that our Stock Advisor service features a bunch of discussion boards exclusively for the use of subscribers, and he offered links to some of those boards. (I invite you to try the service for free for a month -- its stock recommendations are up an average of 68%, versus 26% for the S&P 500.)
Community member Kahunacfa noted: "There are firms -- I believe that Sharebuilder is one -- that will let you invest small amounts on a regular basis to build a position. I have never used Sharebuilder, but I see it mentioned from time to time on the Discount Brokers discussion board." Indeed -- Sharebuilder, one of the brokerages featured in our informative Broker Center, is worth checking out. (Be sure to look over the comparison chart and the special deals.) Kahunacfa mentioned the brokers he uses -- Scottrade, Schwab, Goldman Sachs, and Jeffries.
"I use Sharebuilder for a broker and use their Advantage program. This gives me 20 free purchases for $20 a month," ljdean added. But Gamingfool did some math showing how the $20 plan might not be best in this case. Read his explanation and all other responses in the entire discussion.
Another good point raised, and worth considering, is that dividend reinvestment plans ("Drips") might be a good option.
Discussions like these warm my heart, because they show how valuable it can be to spend some time in our online community, where so many savvy and generous folks are so helpful. In this case, anyone following along would learn how it's very possible to invest with just $200. You don't need to start out with a hefty income to become wealthier. And you even have several options to consider. So if you've been hanging out on the sidelines, trying to accumulate $2,000 or $20,000, maybe it's time to jump in with whatever you've got -- or at least some of it.
Happy investing!
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. The Motley Fool has a full disclosure policy.
