Investing On A Shoestring

It used to take large sums of money and a broker to purchase individual stocks. Not anymore. Low cost purchase options include: investment clubs (generally $25 to $100 of monthly dues for investing), dividend reinvestment plans or DRIPs (where existing shareholders can reinvest dividends and purchase additional shares from a company), direct purchase plans or DPPs (where investors can even buy their first share from a company, plus all subsequent shares), and online investing (several electronic brokers require only $1,000 to open an account).

Diversification is a key to successful stock investing and can be done “on a shoestring” thanks to the purchase options described above. You no longer have to pay steep commissions to purchase less than 100 shares. Be sure to purchase stock of companies in different industries, however, as well as different companies within the same industry (e.g., financial services and pharmaceuticals).

Fixed-income investments are also available in small denominations. Treasury securities are debts of the U.S. (federal) government and are available in $1,000 increments. Due to the principle of “reciprocal immunity” (states don’t tax federal debt and the federal government doesn’t tax state debt), interest on treasury securities is exempt from state income tax. For information and tender forms (the application form for Treasury securities), call 202-874-4000 or check the U.S. Treasury Web site www.publicdebt.treas.gov.

Other low cost fixed-income investments are corporate bonds (loans to corporations sold in $1,000 increments) and zero-coupon bonds (deeply discounted bonds that mature to $1,000 at a specified future date). You might pay $200 or $300, for example for a zero-coupon bond that matures to $1,000 in 12 to 15 years, depending on current interest rates and the quality of the bonds).

Mutual funds are a professionally managed portfolio of securities that a purchased to achieve a specific investment objective (e.g., capital appreciation). Initial investment amounts vary, but can be as little as $50 ($250 to $25,000 is a common range of initial purchase amounts). Individual investment companies set up their own purchase and redemption policies. Funds that require more than $1,000 to open an account generally require less money in three instances: IRAs and other retirement plans, minor’s accounts, and automatic investment (a.k.a., “sharebuilder” accounts).

For more information about investing, visit the Cooperative Extension Investing For Your Future home study course Web site at www.investing.rutgers.edu . Unit 8 discusses investments that can be purchased with small dollar amounts. The course is free to download and new investment messages are posted monthly.