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201 Investing: how to find the best low-cost methods for buying stocks and mutual funds. (Investing Part 2 Of A Series).

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.


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 (IBAs), 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 IBA 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 in your company's 401(k) plan or with IRAs before actually buying individual stocks or additional mutual fund shares. "Investors should not feel they are going to get rich overnight," says Green "It could take years."


Love, who describes himself as "everyday people," knows it's going to take many years before he reaches his extraordinary goals. Last January he established B.I.G. Inc. (B.I.G. stands for Best Investment Group), an investment club that he hopes will become a family trust fund. "We're looking to create [a legacy], just like with the Kennedys," he says with a laugh.

He and Roland have taken the first steps toward establishing the Love family trust fund by opening an online account for B.I.G. Inc. They opened the account with Sharebuilder ( in March, and they each contribute $250 every quarter. So far, they've invested in Exxon (NYSE: XOM), Philip Morris (NYSE: MO), Anheuser Busch (NYSE: BUD), and HealthSouth (NYSE: HRC).

Love believes this was the best approach to building wealth for his family because it allows any family member to participate no matter what their financial situation, and it is inexpensive to maintain the account. "You're talking about minimum amounts of money to invest instead of dropping down thousands of dollars at a time," he explains, "and it's all for just three dollars a trade."

At Sharebuilder (which can be accessed through, investors can set up online accounts with no minimum required, and use dollar-cost averaging to purchase stocks and mutual fund shares. The site also provides financial education, online tools and interactive calculators, research, and long-term investing strategies with an emphasis on diversification (see sidebar "Low-Cost Investing Resources to Help You Get Started").


Robert A. States, a registered representative and tax preparer for Fiducial Inc., advocates working with a broker as opposed to online investing since the market's complexities might be too overwhelming for some people. "There is a high degree of people losing money, and there's a danger you could lose big time if you are not exactly careful of what you are doing," he says.

Marc R. Lippman, a vice president at Salomon Smith Barney Inc. in Washington, D.C., agrees. "Brokers are obsolete as a second step, but they are absolutely necessary to get started," Lippman says an investor who has $10,000 to invest should be prepared to pay a broker a maximum of 4.5%, or $450, as a onetime commission. The sales charges decrease the more money you invest. When getting your feet wet in the stock market, Lippman says "the one-time commission is money well spent--especially during bearish markets. In a market like this, having experience is important."

Online investors choosing discount brokers will save on fees, but Greer suggests that if you are not prepared to devote at least 10.5 hours a month to doing your homework--evaluating your holdings, researching new stocks, and reading financial news--then you should use a professional advisor to handle your portfolio. "If you make a mistake, you will have to eat that mistake," she notes.

Like many beginning investors, Valencia Roner's commitment to long-term investing was tested as the markets began to slide in the spring of 2000. Roner, a single mother who owns VXR Enterprises, a marketing and public relations firm in Culver City, California, opened an account at Etrade ( with $3,000 in March 1999, and immediately made several successful trades. Initially, she tried to use the account to generate extra income, selling her winning stocks even though the gains were modest.

"After 1999, I stopped doing active trading because I started hearing stories about day traders getting hooked and losing all their money," says Roner. Instead Of getting out of the market altogether, she invested a total of $2,500 in Dell Computer (Nasdaq: DELL), Capital Crossing Bank (Nasdaq: CAPX), Novell Software (Nasdaq: NOVL), Intraware Inc. (Nasdaq: ITRA), and Venator Group (NYSE: Z) in February 2000, and decided to hold for a while. "Overall, I didn't mind losing what I had already invested in an attempt to make money," she reasoned. Unfortunately, the market's free fall began in March 2000, and her portfolio dwindled to about $1,250 in October 2001.

Lucky for Roner, she has been able to land the Tavis Smiley Group and the City of Los Angeles Workforce Investment Board as clients, which have allowed her to establish a Simplified Employee Pension IRA (SEP-IRA) through her business. The SEP-IRA works like a regular IRA account and allows her to use dollar-cost averaging to invest in mutual funds or stocks.


Love has several other online accounts from which he says he will eventually transfer assets into the B.I.G. Inc. account. One of those accounts is with EquiServe (www.equi serve, corn), a company that allows investors to make direct investments in publicly traded companies through Dividend Reinvestment Plans (DRIPs). In September, Love invested about $14,000 in Wal-Mart (NYSE: WMT), saving on broker's fees.

Vita Nelson, publisher of The Moneypaper (, a newsletter that offers information about, as well as lists, companies that have DRIPs, says DRIPs are a key resource for people who want to invest but don't have a lot of money. "You can start investing now while you only have a few hundred dollars. Just pick a variety of stocks that make up a balanced portfolio and open an account." Nelson emphasizes that with DRIPs, the strategy is to accumulate shares of companies you believe in so that "you are investing in the company, and not speculating on the price of shares."

Although Love opened his account with EquiServe, Nelson says you can open an account with Temper Enrollment Service (800-295-2550). Temper charges $30 per company to set up an account, but if you subscribe to The Moneypaper, you'll pay $15.50 per company (a subscription costs $90 annually, but first-time subscribers receive a promotional price). Then, you can purchase up to 100 shares at a time for the cost of the shares plus a $5 fee. Some companies also charge additional fees to participate in their direct stock purchasing programs. "The reason we like DRIPs investing is because anytime you have a few dollars, you can send it over to the company and it gets invested in your account with the companies you've chosen, whether it's a whole share or a quarter of a share," says Nelson.

So whether you're investing by yourself or you are starting an investment club, using many of these low-cost investing choices may work for you. Just remember to research religiously, invest in what you know, and maintain a commitment to investing small sums over the long haul.

"Money will work harder for you than you ever can for yourself," says Love. "Once you start a systematic savings plan, you just need to be consistent and then you'll see just how much you can have. You've just got to have patience."


ONLINE BROKERS investment minimum, $6.99 per month with two free trades; $2.99 per transaction thereafter. investment minimum, $4 per trade. investment minimum, $12 per trade, and no-fee IRA accounts.$500 minimum investment, $7 per trade for market order and $12 for limit order. No fee if you hold shares 90 days, $17 if you trade before 90 days. No inactivity fee.$1,000 minimum investment, stock trades for up to $15, and 170 branches nationally.$2,000 minimum investment, $8 per trade for Internet equity market order, $13 for Internet stop or limit order.

DIRECT STOCK PURCHASING PROGRAMS a database of 1,600 companies that offer direct stock purchasing plans (DSPs), Dividend Reinvestment Plans (DRIPs), and access to a Mutual Fund Center. and brochure lists companies with direct investment programs. securities transfer agent in the world, listing 1,400 companies with direct investing programs, information on enrolling in direct investment plans.


The Walt Street Journal's Guide to Understanding Money and Investing by Kenneth M. Morris, Virginia B. Morris, and Nan M. Siegal Simon & Schuster, $15.95

The Motley Fool's Investing Without a Silver Spoon by Jeff Fischer Motley Fool, $15

Black Enterprise Guide to Investing by James A. Anderson John Wiley & Sons, $19.95

INVESTOR WEBSITES Enterprise Magazine Motley Fool Association of Securities Dealers Inc. Association of Investors Corp. of Black Investors
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Author:Albano, Christine
Publication:Black Enterprise
Article Type:Statistical Data Included
Geographic Code:1USA
Date:Dec 1, 2001
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