Jonathan Clements’ Guide to Starting Small

Today’s Getting Going column by Jonathan Clements is titled Start Small, Think Big: How to Launch Your Financial Life With Just a Few Bucks (free). For those just starting out, with little money to invest, Clements recommends:

1. Buying exchange-traded funds through places like, BuyandHold, and FOLIOfn. I have worked with both Sharebuilder and FOLIOfn in the past and found them both to be pretty good alternatives. Sharebuilder only charges $4 per trade. The downside is that it isn’t the most flexible because they only trade on Tuesdays unless you opt for the real time trades which are significantly more expensive.

2. DRIP Investing, which is buying stocks directly from the company. Be careful though because lots of companies have started charging various fees that can eat into your returns. Also, since you are investing in companies directly, I can see this becoming an administrative nightmare.

3. Investing in low-cost mutual funds that have low initial investments. Clements likes the Lifecycle Funds from AARP and T. Rowe Price. You can get started with AARP with as little as $100, while T. Rowe Price will allow you to start with as little as $50 as long as you agree to invest at least $50 through their automatic investment plan.

Anyway, read Jonathan’s article. He almost always has something worthwhile to say.

Oh, and be sure and read my two part interview (Part 1 and Part 2) with Jonathan.

3 thoughts on “Jonathan Clements’ Guide to Starting Small”

  1. I started investing in DRPs a long time ago, before they realized that they could make money charging per transaction. I started buying $50 per month of Exxon then upped it to $100 per month. Same with several other blue chips that offered DRP and direct purchase. What needs to be remembered if the buyer is not funding and IRA (which some allow) is that this soon becomes a tax nightmare. I’ve got several hundred shares of Exxon, all bought in non whole share increments. If I decide to sell a portion, figuring out the basis is going to be a horror story. I have since moved all these shares to a regular brokerage account and they’re over 2 years old (so there’s no longer the short term / long term question). I’ve totaled all the purchases and dividend reinvestments, then divided by the number of whole shares that I transferred. This gives me the average basis in case I want to sell a few shares. I know it’s not exact and the IRS might have issue, but that’s as good as I can figure. The other option would be to sell all shares at one time and use the total basis (more in line with IRS rules).

    The DRP program is great, and often the only avenue for a new investor, but novice investors need to understand the administrative and tax implications going in. DRPs and Sharebuilder

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