Investing 201

How to find the best low-cost methods for buying stocks and mutual funds

While the stock market was going on one of the longest bull market runs in history during the 1990s, Edward Love was learning as much as he could about investing. The 36-year-old Bessemer, Alabama, production worker started with a mutual fund 10 years ago, but in 1999 a friend introduced him to online investing, and within a year, he was hooked. Online investing opened up a new world where financial information was a mouse-click away, any time, day or night. By studying many of the online investing Websites, he now feels so confident about his knowledge of the markets, he uses his laptop to do his own research and stock trades.

Love also discovered a number of ways to purchase stocks at a lower cost than major Wall Street firms charge. Because of his modest income, investing online immediately appealed to him. And it made financial sense, too.

“Your profit margin is better when you can invest on your own,” says Love, who has opened several online accounts as well as enrolled in a direct stock purchasing plan in order to save money.

If you want to save money while you invest, commit to a strategy of investing small sums on a regular basis with investment companies that allow you to make transactions at lower cost. It’s a great way for beginning investors to get started and get the most value for their hard-earned dollars. You will have to investigate brokerage companies as well as publicly traded companies you’ll invest in. Others have done it. Why haven’t you? Whether you have a lot of money or a little, over the long haul, you can reap the benefits of low-cost investing. But you have to get started.

DOLLAR-COST AVERAGING
Whether you know it or not, you may already be engaging in low-cost investing through your 401(k) or 403(b) plan. Anyone participating in these qualified defined-contribution retirement plans is making regular pretax contributions (of up to $10,500 annually for 2001, $11,000 for 2002). Some companies match employee contributions up to 100%, and the funds can be invested in several options, usually a choice of mutual funds, a money market fund, and company stock. Once you’ve made your selections, your money is invested at regular intervals–virtually at no cost to you.

Investing a fixed dollar amount in the same security over a period of time is known as dollar-cost averaging, and this strategy can be implemented with 401(k)s, individual retirement accounts (IRAs), or investment accounts for purposes other than retirement. An IRA is a personal, tax-deferred individual retirement account that allows employed people to contribute up to $2,000 a year ($3,000 in 2002) toward their retirement. Most financial services companies can arrange for a set dollar amount to be transferred directly from your checking account or after-tax payroll check to your IRA to take advantage of dollar-cost averaging.

Baunita Greer, president of Cromwell, Miller & Greer, in New York, a division of the security brokerage firm B. Pierce & Co., says any good investment plan should start with participation

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