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CP Investment Help Center

Investing On a Tight Budget 
By Ali Jaffery

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Want to get started in the markets, but you don't have much money to invest? I usually advise buying low-minimum mutual funds. But I also realize many folks prefer to invest in individual stocks and bonds.

That can be tricky if you are on a tight budget. But it is not impossible. Looking to build a portfolio of individual securities? Try these three steps:

1. Lay a Foundation

If you are short on cash but determined to stick with individual stocks, you have a problem: You can't afford to buy enough companies to build a well-diversified portfolio.What to do? As a core portfolio holding, consider purchasing an exchange-traded index fund, such as iShares Russell 3000 Index Fund or Vanguard Group's Total Stock Market VIPERs. 

Admittedly, if you are aiming to avoid funds and stick with individual securities, buying exchange-traded funds is a bit of a cheat. These ETFs are indeed funds, each of which mimics a designated index. But they are also stocks, and they trade on the exchange, just like other stocks.  y into the market. Investors should be investing, and they should be doing it with ETFs. With an ETF, you're spreading your risk. 

Intrigued? To purchase ETFs, consider using one of the Internet's low-cost stock-purchasing services, such as BuyandHold and ShareBuilder.  

ShareBuilder charges $4 a trade, while BuyandHold levies $6.99 a month, which covers two trades. The two services also offer more-expensive monthly plans, which allow unlimited trading. 

Both BuyandHold and ShareBuilder allow investors to purchase more than 4,000 stocks. But some stocks that interest you may not be among the 4,000, so peruse the list of available stocks carefully before signing on.


2. Pick Out Curtains

Once you have settled on a core stock-market holding, it is time to customize your stock portfolio. Want to emphasize dividend-paying shares, like Philip Morris and Washington Real Estate Investment Trust? Looking to overweight consumer-product companies, like Colgate-Palmolive and PepsiCo, or drug manufacturers, like Johnson & Johnson and Pfizer

You could purchase these stocks through BuyandHold and ShareBuilder. But all of these stocks are also available to small investors through dividend-reinvestment and no-load stock plans. 

With the dividend-reinvestment plans, often known as DRIPs, you can arrange to have your dividends automatically reinvested in a company's shares.

You can also purchase shares by sending in optional cash investments, often in amounts as little as $25 or $50. Many plans charge little or nothing in fees, unless you choose to sell. 

But there is a catch. To enroll in a DRIP, you typically need to own at least one share. To acquire that single share, you could use a discount broker. But you may find it cheaper and easier to use one of the DRIP-enrollment services. Such services are offered by Moneypaper, a newsletter in Rye, N.Y., and by the National Association of Investors Corp. in Madison Heights, Mich. 

Some companies will let you enroll in their dividend-reinvestment plans even if you don't own shares. To buy one of these so-called no-load stocks, you typically have to make an initial investment of $250 to $1,000.


But be warned: Many no-load stock plans charge a slew of irritating fees. Unless you plan to invest a hefty sum, I would avoid the higher-cost plans. 

You can find out more about DRIPs and no-load stocks, including a list of participating companies, by going to or


3. Add Insulation

Stocks alone don't make a decent portfolio. You also need some bonds, which will provide portfolio protection at times like this, when stocks are in a funk. 

If you want to buy individual bonds, consider purchasing Treasuries directly from the government through the TreasuryDirect program. The minimum investment is $1,000 and there are no commissions charged on purchases. 

Alternatively, you could buy savings bonds from Uncle Sam. Savings bonds usually yield less than comparable Treasuries, but the minimum investment is just $25.  

Meanwhile, corporate bonds are available for direct purchase through Direct Access Notes and InterNotes. With both Internet services, the minimum investment usually is $1,000. 

The corporate bonds available should yield more than Treasurys, but there is also greater risk involved. In addition, if you buy individual corporate, be prepared to hold the bonds to maturity. If you try to sell earlier, you will likely find it difficult to unload your bonds at a decent price. 

Another option is to buy an exchange-traded bond-index fund. San Francisco's Barclays Global Investors, which runs the iShares series of exchange-traded funds, launched the first four exchange-traded bond funds in July. All four funds are available through ShareBuilder.

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