A few friends have wondered how they can begin to invest in the stock market when they can save only $25 per month to start. Rather than write to all of those folks individually, I thought I'd share my thoughts with you on how to invest on that small monthly amount through BUYandHOLD. But first, this message:

If you have debts that eat away at your budget with their interest rates, my suggestion is to pay those debts down before you begin to create your portfolio. Any interest rate that's set at 12% or more on your debts will make any investment plan a moot issue - you cannot reap enough benefits from any $25 per month investment to counter that debt interest over a year's time.

You have two ways to begin investing that $25 per month - the first strategy is for absolute newbies who know nothing about the stock market and who need to learn more about investment strategies while their money gains interest. You can learn more about these savings methods in the articles that show teens how to begin their investment strategies (you may not be a teen, but the same methods can apply to you).

The second method is to create a portfolio immediately with BUYandHOLD. This method is for people who don't need that $25 per month and who are willing to display some patience and determination. You probably won't see huge profits in the beginning with this small amount, so you'll need to hang tight and persevere.

When you open an account at BUYandHOLD, you'll need to choose your investment strategy. At $25 per month, you really only have two choices here, and I'll explain why in a moment: You can open an Individual Account with a Basic Investment Plan, preferably using BUYandHOLD's E-ZVest^sm plan, or, you can open an IRA Account where you can enjoy a tax-deferred status and a waived annual fee ($25) if you set up E-ZVest^sm . The only differences between the two accounts are 1) cost, and; 2) liquidity (while both accounts aren't as liquid as a savings account, the IRA charges a penalty for early withdrawal and a there is a BUYandHOLD termination fee of $50; a problem which makes this choice conceivably less liquid than a regular stock purchase in an Individual brokerage account).

If you choose to join the Basic Investment Plan, you currently need to pay BUYandHOLD $6.99 per month. But, this is a paltry fee when you consider that you can make two trades per month without further cost. Additional trades within any month will cost you $2.99 per trade. This means that your brokerage fee for two trades per month will equal $3.495 per trade, and I believe that this cost might be one of the lowest brokerage fees that you'll find anywhere. If you choose the IRA option, you pay $2.99 per trade. If you decide to purchase two different stocks for a bit of diversity, the charge to your IRA account would equal $5.98.

BUYandHOLD requires a minimum investment purchase of $20 and requires you to provide a Bank Account or a credit card for fee payments. Since I already told you that credit cards will eat away at any gains you might see in your stock portfolio, the news here is that you will need to increase that $25 per month to about $30 per month to enable participation in BUYandHOLD's investment strategy. Don't freak out - you can find that extra money somewhere, especially if you cut back on your chocolate or potato chip consumption (imagine - you can lose weight and build an investment strategy at the same time!).

The good news is that when you pay your fees separately, you'll: 1) avoid reducing your investment deposit from $25 to $18.01 (for the Basic Investment Plan), which would be less than the minimum investment amount, and; 2) you can keep track of your charges easily - this is important, as your charges will reduce the amount of your capital gains on your tax return when you decide to sell your stock purchases.

The real question here is this: Is this small amount worth saving? And, the answer is yes, it is, and the reasoning is simple:

The point behind this investing method is dollar cost averaging. This approach does not assure you a profit nor protect you against losses, no more than if you had thousands of dollars to invest. This strategy requires that you invest on a regular basis, no matter what the stock price is for that period. When the stock price rises, your investment dollars purchase less shares, and when the stock price is lower, your investment dollars purchase more shares. So, set a goal - say for a certain number of shares - and make a purchase (say, once a month) until you reach your goal. Over the long run, your objective is to amass a portfolio valued at less than the prevailing market price.

One way to test this theory (and your reaction to risk) is to open a free watch portfolio at Yahoo! Finance (go to "portfolio > create") and input ticker symbols for at least two companies that interest you. I'll explain how to use and read this watch portfolio in the next article so that you can learn more about how dollar cost averaging works. I'll also provide information about the value of reinvesting dividends and you'll hear my argument for the E-ZVest^sm plan over the next few weeks.

Until Then,
Linda Goin