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-- Posted: Sept. 21, 2000

Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

How much money do I need to start investing?

Dear Dollar Diva,
What is the minimum amount of money needed to start investing for financial growth? I want to invest in mutual funds or stocks, but my funds are limited.

The Diva reminds you that saving comes before investing, so make sure you squirrel away some money to cover emergencies first. You want to set aside at least enough cash to cover three to six months of living expenses before you get into the market.

Money market funds, bonds and certificates of deposit are good places to put your emergency savings. To find out why, read the Diva's "Where do I stash my emergency cash?"

Mutual Funds

Most mutual funds make you cough up at least $1,000 to open an account. But don't go 'way. There's a fund-family that will let you play for less: TIAA-CREF.

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TIAA-CREF stands for Teachers Insurance and Annuity Association and College Retirement Equities Fund. It used to serve the education community, exclusively, but now offers affordable, no-load, low-fee mutual funds to the public. That's good news for the small investor.

$250 opens a mutual fund account at TIAA-CREF. And if that's too much, they have an Automatic Investment Plan that lets you invest as little as $25 every three months; your checking account is automatically debited for the $25. The Diva suggests taking a pass on the Automatic Investment Plan unless you are absolutely certain that you will have the $25 in your account when the debits are due. It can cost too much in bank fees if you screw up.

Before you give them, or anyone else, your hard-earned bucks make sure you read the fund prospectus. If you find a fund you like, go to Morningstar, the gorilla mutual fund analyzer, for more research and independent editorial comment.

No load stocks

Hundreds of solid U.S. companies such as Coca Cola, General Electric, Pfizer and Disney sell stock directly to shareholders through a dividend reinvestment plan (DRIP) or direct stock purchase plan (DSP).

They're called no-load because, originally, investors paid no transaction fees. Or the fees were very minimal. You have to be more vigilant today because some of the companies have gone piggie.

The piggies are charging separate fees for signing you up, selling you shares and making automatic debit transactions from your checking account; this can really hurt the small investor. But don't worry. There's a Web site, Netstock Direct, that provides free information on company DRIPs and DSPs, including enrollment requirements, plan details and fees. You'll also find a plan prospectus and application form for any company that peaks your interest.

Internet investing

The Web is hopping with innovative investment ideas, many of them geared to the small investor. He can buy fractions of shares of stocks at low fees, and open a brokerage account with no minimum balance. The Diva hopes the small investor is doing his homework before he plunks down his cold cash for a quarter of a share of whatever.

The following online brokers are getting a lot of attention for their creative ways of transacting stock trades, and are worthy of a look:

Buyandhold.com lets you open an account for as little as $20. The entire balance can be invested in the stock of your choice. If it's a $15 stock, you can buy 1.333 shares. There's a $2.99 fee per trade. That's a lot of money for a $20 trade, but fair enough for a $100 trade.

Sharebuilder.com has no minimum for opening an account. The fee is $5.00 for a one-time trade, and $2 per trade if you're in a monthly investment plan.

The transaction fees are so low because stocks are not transacted in real-time. Buyandhold.com trades twice a day and Sharebuilder.com, once a week.

Before dipping your toe into the world of stocks and mutual funds, please read the Diva's "Where does a novice investor begin?" You'll find a compilation of tips to guide you along your journey in the market.

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