Last school year, my son started an illicit chip business. No, he wasn’t selling pirated computer chips he’d imported illegally from Asia and snuck in without paying tariffs. He was selling potato and corn chips out of his jacket at school between classes. As is always the case when you have an over-oppressive government regulating the goods that can be sold, a black market forms. In this case, Michelle Obama’s plan to make high school juniors eat like a bunch of 40-something women created an opening for an enterprising young person to create a business selling full-fat junk food and sugar. My son was just the guy.
It was a great experience for him to learn how to run a business. He would go to Wal-mart and buy the jumbo variety packs of chips. He later started buying chocolate bars as well and keeping them in his pocket along with a small ice block to keep them cool. In general, he would double the Wal-mart price, so if he got the chips for $0.50, he would sell them for $2. Chocolate bars went for $1.50 each. By the end of the school year, he was going to Wal-Mart a couple of times per week to stock up.
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In addition to trying to get a little extra spending money, he wanted to gather some money to start investing. When I started investing back in the 80’s, I put $250 from my bank account into 15 shares of Tucson Electric Power at $15 per share. I therefore paid about $225 for the shares and $25 for brokerage commissions. That 10% fee, due to the small amount I was investing, was fine for a one-time investment to get some stock but was pretty steep to do on a regular basis.
When my son had finished off the year and was ready to invest (he didn’t continue the business this year), we looked first at Vanguard to find an index fund. Unfortunately, all of the funds there had at least a $3,000 minimum, which was way out of his league. We then went to Schwab and I was amazed at what we found. They actually have several index funds that you can buy with just $1 to start! (While this may seem like an ad for Schwab, believe me, I am receiving no remuneration from them. ) We set up an account (which took maybe 15 minutes online), sent in a check, and then made the purchase online.
We put $391 into their small-cap index fund. Before the pull-back last week, it had risen to about $450. I think he is about $20 up now, after the correction we’ve seen.
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I was really amazed at how easy it was to start investing, compared to how difficult it was before. There is no big minimum. (I think a standard brokerage account has a $1,000 minimum, or $0 minimum if you elect for regular payments into your account from your bank account. For my son, I think because it is a custodial account, there was no minimum.)
So, if you were thinking about starting an investing account or an IRA, why not do it tonight. You could have the account setup in 20 minutes and then start investing in a few days (after getting money into the account). Here are the three easy steps:
- Go to the Charles Schwab website (www.schwab.com) and set-up an account. You’ll need to give info like social security number, address, phone number, and beneficiary information.
- Fund the account with whatever you can. If you have $1,000 saved up, send it in and start things going. You can send in a check or send in money electronically. There are probably other ways to send money – I’m sure they can help you if needed. If you don’t have at least $1,000, set up regular payments from your bank account for whatever you can afford, whether it’s $500 or $50 per month. Really, you should set up automatic drafts regardless since regular investing is the key to building up a portfolio.
- Choose an index fund to invest your money in. I would recommend any of these funds to start, and then slowly building up a portfolio including all of these funds in roughly equal amounts:
Large Cap: Schwab Total Stock Market Index Fund (SWTSX) or Schwab® S&P 500 Index Fund (SWPPX)
Small Cap: Schwab Small-Cap Index Fund® (SWSSX)
Mid Cap: Schwab® U.S. Mid-Cap Index Fund (SWMCX)
International: Schwab International Index Fund (SWISX)
If you don’t like market fluctuations, or if you will need to start accessing the money from your account within about 15 years, you should also mix some bonds into your investment mix. These will smooth things out a bit, although over long periods of time they will reduce your returns. To add bonds, just buy:
Bond: Schwab® U.S. Aggregate Bond Index Fund (SWAGX)
A good rule-of-thumb is to put your age minus 10% into bonds. If you are fifty, put 40% into bonds, for example.
If you start an account and begin to invest, be sure to let me know. I’d love to hear about your progress.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.