How to Invest $20, $100, and $1,000 (and More)

Got only $20 to put away right now?

It may not sound like much, but you can use it to buy shares in Intel. Or Johnson & Johnson. Or Harley-Davidson (you rebel). And those are just a few of more than 1,000 options available. What if you’ve got $100 — or $1,000? Your options are even greater.

We’re not here to tell you where to invest your money. We won’t lay out a handful of stocks on a “buy” list. But what we can tell you is how you can invest your money — the mechanics of investing small, large, and medium amounts of cash. We can even help you choose a broker.

How to invest $20
Let’s start with $20. We’re going to assume that you’ve already paid off any high-interest debtand that you have some money stashed in a safe place (like a savings or money market account) that you can get to quickly in case of an emergency expense. Now you find yourself with a little extra dough, and you want to begin investing for your future.

Is it even worth it to invest such a pittance?

Heck yeah it is! One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.

More than 1,000 major corporations offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you’re in the plan, you can set up an automatic payment plan, and you don’t even have to buy a full share each time you make a contribution.

Drips may be one of the surest, steadiest ways to build wealth over your lifetime (just make sure you keep good records for tax purposes). For more details on Drips, see “What if I can only invest small amounts of money every month?“

How to invest a couple of hundred bucks 
So you’ve weeded out all the wooden nickels from your spare-change jar and have tallied up a few hundred bucks. Instead of blowing it on snack food and Elvis memorabilia, consider investing it in an index fund (the only kind of mutual fund Fools like). An index fund that tracks the S&P 500 is your ticket to an investment that has traditionally returned about 10% per year.

Some index funds require as little as $250 for you to call yourself an owner. This low minimum is usually restricted to IRAs (Individual Retirement Accounts). After your initial investment, you can add as much money as you like, as frequently as you like, with no additional costs or commissions. You purchase index funds directly from mutual fund companies, so there are no commissions to pay to a middleman.

If you have a few hundred dollars to start with, then this is a great, low-cost way to establish an instant, widely diversified (500 companies!) portfolio.

How to invest $500 
Once you’re up to $500, your investment options open up a bit more. You can still buy an index fund, and now you’ll have your pick of fund companies that require higher initial investments. This freedom will enable you to shop around for a fund with the lowest expense ratio.

You should also seriously consider opening a discount brokerage account. You’ll want to focus on the account option that best serves your needs; some accounts require a minimum initial deposit, and some don’t. That means you can open up an account with whatever investing money you have available, and start researching and perhaps purchasing individual companies. (Or, if you’re enamored of index investing, you can easily invest in Spiders, a stock-like investment that mimics the performance of the S&P 500.)

The key here is to keep your costs of investing (including brokerage fees) to less than 2% of the transaction value. So if you’re planning to add to your position in stocks a few times a month, a Drip or an index fund may still be the way to go.

How to invest $1,000-plus 
What can you do with a grand? Obviously, with $1,000 you can open up a discount brokerage account, but look at the rewards if you can scrape up an additional $1,000 a year to add to your original investment.

Say you’ve got 40 years to retirement. If you start with $1,000 and invest an additional $1,000 each year, and your money earns 10% annually, then when you’re ready to retire at age 65, you’ll have $532,111.07. That seems worth it to us. If you have earned income, you can set up a Roth IRA, and you won’t even pay any taxes on that $532K when you withdraw it. (As always, your mileage may vary.)

Again, even at this level, the key is to keep fees from eating up your earnings. So make sure that the costs of investing (including brokerage commissions, stamps to mail in checks, and books that help you learn to invest) are less than 2% of your account’s overall worth. With small accounts, that can be a challenge, but with such low commissions being offered by discount brokers, it’s definitely doable.

From http://www.fool.com/

Interesting How-to about getting rich

I found this interesting but superficial article on http://www.wikihow.com, Good reading!

1. Define “rich”. It’s one of those subjective words that everyone uses but no one defines. What are your standards for being rich? In other words, what do you envision when you think about being rich? This can be different for everyone. Usually it whittles down to a few common goals:
2. • Prestige. For many people, the idea of getting rich is tied to getting respect. It’s not so much about how much money you have, but about maintaining a luxurious standard of living–exotic vacations, nice cars, swimming pools, etc.
   • Retirement. Some people want to get rich so that they never have to work another day in their lives. In this case, the standard of life one wishes to maintain once retired is critical to understanding how much money is needed to get rich.
3. Keep your eyes and ears open. All the time interesting people and chances appear and disappear. Get a feeling when to step forward and when to wait. Attend free online lotteries, it might sound cheap but as long as you do not pay something you can attend short and longterm free lotteries and you got nothing to loose. There are several lotteries available (http://www.dmoz.org)
   In October 08 http://www.linktofortune.com opened it’s doors, also a hot candidate to try as long as tickets are available.
4. Delay gratification. If you’re looking for information on how to get rich, then you’re probably not rich right now, and there’s a reason for that. Are you spending money on things that won’t get you rich? Are you sticking with a job that doesn’t make that much money to begin with? In order to get rich, you’re going to have to give up some of the things you enjoy doing now, so that you can enjoy those things without restriction later. For example, you might like having free time, so you give yourself a few hours a day to do nothing. But if you were to invest those few hours into getting rich, you could work towards having 20 years of free time (24 hours a day!) with early retirement. What can you give up now in exchange for being rich later?
   • Cut expenses
   • Get a job that pays more or get a promotion
   • Downgrade or give up your car
   • Downgrade your apartment or house
   • Reallocate your spare time
5. Save money. You’ve heard the phrase “It takes money to make money.” So start socking away the extra money you’re making now that you’ve delayed gratification as outlined previously. After all, what’s the point in giving up the stuff you like if you have a hole in your pocket? Start building a “get rich fund” at the bank. Always pay yourself first. This means before you go and blow your pay check on a new pair of shoes or a golf club you don’t need, put money aside in to an account that you don’t touch. Do this every time you get paid and watch your account grow.
6. Invest. Once you’ve stockpiled your savings, start thinking of ways to invest it. This is where your definition of “rich” really comes in handy. If you’re looking for prestige, for example, a good investment would be education. Save up enough money to attend an Ivy League school and obtain a degree in something that will make decent money but, more importantly, earn great respect (doctor, lawyer, dentist, any kind of professional). If your goal is to retire early, on the other hand, invest that money in stocks, bonds, or other vehicles of investment that will give you an annual return on investment (ROI) that’s enough to maintain you in your retirement. For instance, if you have one million dollars invested and you get a reliable 7% ROI, that’s $70,000 per year!
7. Stay rich. It’s hard to get rich, but it’s even harder to stay rich. Your wealth is always going to be affected by the market, and the market has its ups and downs. If you get too comfortable when times are good, you’ll quickly drop back to square one when the market hits a slump. If you get a promotion or a raise, or if your ROI goes up a percentage point, don’t spend the extra–save it for when business is slow and your ROI goes down two percentage points.