News & Ideas

How to Start Investing

Start Investing, Even with Just a Few Bucks

get started investing
Photo by Sam valadi

Here’s the promising title of an article in the Washington Post, How to start investing if you have $1,000 or less.

I’m pleased to say the story lives up to its title, with lots of good information for anyone who is ready to get started investing or the first time. It points out that after paying off most of your debt and establishing an emergency fund, it may be time to think about making your money work harder for you,

“In a period when interest rates on savings accounts are near zero, taking some risk in the market can help people reach specific goals, such as those saving for a down payment, for retirement or for their children’s college education. Plus, it doesn’t take much money to get started: The rise of apps and roboadvisers make it possible to start investing with as little as $5.

“Many of those apps and online accounts will still do the job as your account balance grows. But having a little more to start with — in the ballpark of $1,000 — opens up even more options for people looking to launch investment portfolios. Some of these programs will use algorithms or software to help you figure out how to invest the cash. Other programs will be a better fit for people who don’t need any investing guidance at all.”

One of the strengths of this article is its consideration of roboadvisors in helping get investors started with even a modest amount of cash. Roboadvisors are online programs that make stock, bond, and mutual fund recommendations based on how you answer a series of questions. While I haven’t used one myself, I understand they are quite user-friendly and helpful. Worth checking out if you want to get started.

Be Careful with Short-Term Funds

mutual fund fees

Yet again, another case where the mutual fund fees make a difference: Short-Term Bond Funds.

An article in the Wall Street Journal argues that while short-term funds fill an important need in the market, fees can take up much of the return, if you’re not careful.

The article says, in part,

“. . . investors often have short-term funding needs, and in the past a short-term bond fund was an ideal vehicle for that. An investor saving for, say, a down payment on a house in two years could expect to keep up with inflation and face minimal risk.

“The problem is, with interest rates so puny, saving for a goal in a short-term bond fund isn’t as easy as it used to be. More than ever, the fees charged by the fund will determine the success of such an investment. And unless the fees are low, any potential gains could be wiped out.”

As a practical starting point, make sure a fund you’re considering does not charge a front-load or a back-load fee. These refer to sales commissions charged when you buy (front-end) or when you sell (back-end) your mutual fund. Normally, even the short-form of the prospectus will give you that information.

Second, shop around. Go to the websites for which you receive recommendations or you find through your own searching. Lots of information now resides on the web so you will usually locate something with just a few minutes of searching.

Alternatively, you can use a mutual fund screener, an online tool for sifting through funds based on the criteria you set. Make no-load one of your criteria and the screener will do all the work for you.

Robert Abbott

Robert F. Abbott has been investing his family’s accounts since 1995, and in 2010 added options, mainly covered calls and collars with long stocks.In his other writing, Abbott explores how the middle class has come to own much of big business through pension funds and mutual funds, what management guru Peter Drucker called the Unseen Revolution. In Big Macs & Our Pensions: Who Gets McDonald's Profits?, the first of a series of booklets on this subject, he looks at the ownership of McDonald’s and what that means for middle class retirement income.In an eclectic career, Robert Abbott was a radio news writer and announcer, a newsletter writer and publisher, a farmer, a telephone operator, and a construction worker. When not working, he has been a busy volunteer, which includes more than a decade of leadership roles at the Airdrie Festival of Lights, one of North America’s leading holiday light displays. He lives in Airdrie, Alberta, Canada.