Expert: Gina Boykin - 2/17/2008

Question
Novice wants to set up low-cost investing account.

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I'd like to start investing, but have no idea how to actually to it.

I'd like to find out about how to begin investing small amounts of money on a
monthly or quarterly basis in a single account somewhere that would let me
buy/sell no load mutual funds and stocks (preferably, I'd like to be able to
own funds and shares from non-U.S. companies, also).

My priorities are:

1. convenience (all trades on one statement), and

2. lowest possible fees (for buying/selling, etc.).

A bonus would be the ability to hold money in foreign currencies, but that's
not essential.

Can you give me any suggestions on how best to do this?

I know there have got to be some pretty important do's and don't's about this,
and some really good and really bad places (web sites, investment companies,
etc.) to get this all set up. I'm hoping to avoid making any really big mistakes
in getting my first investment account started.

Thanks, in advance, very much.

Answer
It's actually very easy to set up an account with a broker.  Here are the steps:

1.  Educate yourself.  Here are a few websites where you can learn about the different type of investments.  Mutual funds are simply a group of other investments (stocks, bonds, treasuries, REITs, etc).  Before deciding where to put your money, you need to think about what you want to invest in - which should be based on your goals.

www.investopedia.com   www.fool.com   www.youngmoney.com

2. Decide what type of account you are going to open? Will it be a Roth IRA or a regular investment account?  A Roth has many tax advantages, but this is once again based on your goals, and how long you plan for the money to be invested.

3.  Check out a few of the discount broker websites (Vanguard, Fidelity, Charles Schwabb, ETrade)

www.vanguard.com   www.fidelity.com   www.etrade.com  www.schwab.com

All of these brokers have programs where you can invest $50-$100 monthly or quarterly, if you sign up for automatic drafts from your bank account.  Some accounts may require a minimum balance to avoid fees, so look for that when you compare.

4.  Search for and select your investments.  Each of the brokers I mentioned above have hundreds of mutual fund options.  How do you narrow it down? Well, hopefully you have educated yourself by this point, so you have an idea if you want to invest in bonds, large company stocks, international company stocks, invest in a certain industry, or something else.

This will help to narrow down the list.  Then you can compare funds by searching (1) no-load funds, which should be one of the selection options (2) long-term returns, at least 10 years (3) expenses/fees.  The funds that have the lowest fees are ETFs (exchange traded funds) and index funds.  Fees are important because they reduce your return.

For example, if you have fund A that makes an average 12% a year and has expenses of 3% vs. fund B that makes an average 11% a year and has expenses of 1%, fund B is actually better because the net amount is higher.

Watch out for 12-b1 fees.  If you've narrowed down your list to a couple of funds, make sure to read the expenses section carefully and avoid anything that shows this fee.

Also, if you plan to buy and sell often, some mutual funds have short-term trading fees to discourage day trading.

Other than that, no-load mutual funds should not have any fees to buy or sell.

5. Sign up!  These brokers have easy to fill out forms online.  You can also call at any time and someone will be happy to answer your questions.  They have easy to read statements, and you can view your account 24-hours a day online.