How do I make a small investment in the stock market? What is the minimum investment required?

Question

I am not rich, so I am talking one to two hundred U.S. dollars per month only. I would like to know whether I can buy stock using that little amount of money, and how to do that if possible?

As an example, assuming I wanted to buy stock in Walmart, what is the minimum that I would need out-of-pocket?

It is probably unwise to invest in individual stocks unless you have enough money to diversify. If you already have money in diversified instruments like mutual funds, you can play around with stocks, but otherwise, look for nice, low-fee, no-load index funds that will let you set up an automatic investment plan--that can sometimes get you around minimum initial purchases. Good luck. — Rick Goldstein, Mar 04 '13 at 03:40
That little money suggests you buy a mutual fund, preferably a low cost index fund. — JTP - Apologise to Monica, Mar 04 '13 at 04:55
Try reading this post: http://money.stackexchange.com/questions/986/shares-are-they-really-only-for-the-rich-investors — Bhavin, Mar 04 '13 at 08:53

John Bensin · Answer 1 · 2013-07-11T21:09:30.817

A rough estimate of the money you'd need to take a position in a single stock would be:

(current share price * number of shares) + broker commission

In the case of your Walmart example, the current share price is 76.39, so assuming your commission is $7, and you'd like to buy, say, 3 shares, then it would cost approximately (76.39 * 3) + 7 = $236.17. Remember that the quoted price usually refers to 100-share lots, and your broker may charge you a higher commission or other fees to purchase an odd lot (less than 100 shares, usually).

I say that the equation above gives an approximate minimum because

Commissions vary from broker to broker.
If you submit a market order, you get the market price, which is whatever price the stock traded at when the broker filled your order. This may be different from the price you saw a few seconds earlier in Google Finance, Bloomberg, etc. This is especially relevant if you submit an order when the market is closed because the price you see when you submit your order is the closing price from the previous trading day. The opening price of the next trading day (which is when your order will be submitted) will likely be different from the previous closing price (this depends on several factors).
If you submit a different kind of order, e.g. a limit buy order, your order may be filled at a different price than the price specified in your order for similar reasons to the above or reasons depending on the price of your order. In the case of a limit buy order, your order will be submitted at a price no higher, but potentially less, than the price specified in your order.
If you start using more complicated orders, there can be more factors involved, e.g. margin requirements.
Some brokerage accounts may require you to fund your account with a minimum amount, so even if it would only cost $100 to buy shares in a company and cover the commission, you couldn't open an account with only $100. That's a minor point, however, because many brokerage firms don't require an account minimum, at least for stocks.
Commissions may vary depending on the stock. Some brokers will charge you higher commissions for buying pink sheet/over-the-counter stocks and/or stocks with a share price less than a certain small threshold.

However, I second the comments of others that if you're looking to invest a small amount in the stock market, a low cost mutual fund or ETF, specifically an index fund, is a safer and potentially cheaper option than purchasing individual stocks.

But if you submit a limit buy order, you won't pay more per share than your limit order price, you sometimes may pay less. — Victor, Apr 07 '13 at 21:16
@Victor I know. I only used that as an example of a "different kind of order from a market order" so I wouldn't have to detail every single possible order a trader could make, which is why I didn't go into specifics for just that type of order. — John Bensin, Apr 07 '13 at 21:18
Usually, the price per share for odd lots is larger than the price for shares when bought in multiples of 100 shares. — Dilip Sarwate, Apr 07 '13 at 21:42
@JohnBensin I don't think that it is necessary to include that in your answer, but quoted prices usually assume 100-share lots, and so if someone goes to buy 3 shares of a stock at a price that is seen on a ticker tape, the share price is likely to be more. — Dilip Sarwate, Apr 07 '13 at 21:50

score 9 · Answer 2 · edited Apr 08 '13 at 12:42

There are more than a few ideas here. Assuming you are in the U.S., here are a few approaches:

First, DRIPs: Dividend Reinvestment Plans. DRIP Investing: How To Actually Invest Only A Hundred Dollars Per Month notes:

I have received many requests from readers that want to invest in individual stocks, but only have the available funds to put aside $50 to $100 into a particular company. For these investors, keeping costs to a minimum is absolutely crucial. I have often made allusions and references to DRIP Investing, but I have never offered an explanation as to how to logistically set up DRIP accounts. Today, I will attempt to do that.

A second option, Sharebuilder, is a broker that will allow for fractional shares.

A third option are mutual funds. Though, these often will have minimums but may be waived in some cases if you sign up with an automatic investment plan. List of mutual fund companies to research.

Something else to consider here is what kind of account do you want to have? There can be accounts for specific purposes like education, e.g. a college or university fund, or a retirement plan. 529 Plans exist for college savings that may be worth noting so be aware of which kinds of accounts may make sense for what you want here.

score 7 · Answer 3 · answered Mar 06 '13 at 21:08

7

Many brokers offer a selection of ETFs with no transaction costs. TD Ameritrade and Schwab both have good offerings.

Going this route will maximize diversification while minimizing friction.

answered Mar 06 '13 at 21:08

James

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I second this! TD Ameritrade allows you to purchase hundreds of ETFs with no transaction costs. Since you're investing small amounts, those costs could kill you. The ETF's are good investments; they are diversified baskets of stocks, so you won't get burned if one company performs poorly. – MattMcA Mar 10 '13 at 06:48

How do I make a small investment in the stock market? What is the minimum investment required?

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