How to Get Started Buying Stocks With Little Money
Investing in stocks can be an excellent way to get a better return on your money. You can earn more than CDs or savings accounts pay, but the initial-investment requirements at traditional brokerage firms present a barrier to many people. However, if you want to get started buying stocks with little money, there are ways to do so that do not involve taking excessive risks. Nontraditional brokers usually charge lower transaction fees, making it easier to start buying stocks with limited funds.
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Instructions
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Open an online stock trading account with low or no initial-deposit requirements. For example, ShareBuilder.com has no minimum requirements and transaction fees as low as $4 to $10. BuyandHold.com has subscription trading accounts starting at $7 a month with two free trades, and $3-per-trade fees thereafter.
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To open an account, you'll need your Social Security number, a valid government ID (such as a driver's license) and a bank account you can use for electronic transfers. You can open the account online in a few minutes.
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Consider opening a mutual fund account. Many mutual funds are pricey, with initial deposits of $2,500 or more. However, there are some very good ones that have starter accounts with much lower minimums, including some Vanguard funds. If you are willing to open the account as an IRA, some top-of-the-line funds will greatly reduce the initial-deposit requirement. You can usually open a mutual fund account online or by filling out a form and mailing it in.
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Check to see if a company whose stock you are interested in offers a direct stock purchase plan. These plans feature very low transaction fees. (Some companies, like Exxon and Pfizer, even pay the purchase fees for you.) Accounts can usually be opened with only $250 to $500. Even this can be waived if you agree to automatic monthly debiting from your bank account of a small amount, usually $50. If a company has a direct stock purchase plan, it will be featured on its investor relations web page, most often under shareholder services.
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Ask your employer if it offers an employee stock ownership plan. With most ESOPs you don't own the stock directly. Instead, you contribute to your account, and your money is used along with that of other employees to purchase company stock. This option often has a major advantage: Many employers will add funds to yours, so you get more stock for less money.
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Tips & Warnings
Avoid the temptation to put your money into risky investments, like stock options or penny stocks, when you first start investing. While you can buy these for less money, you could lose money. Wait until you have a solid portfolio of more stable securities and a fair amount of experience trading stocks before you venture into riskier investment areas.
