There was a small yet interesting article in the Wall Street Journal today. The article discussed investing with just a few bucks and they listed some interesting ways to invest, which I’ll try to summarize.

First things first, diversify!

Obviously, it’s hard to own a wide variety of stocks with just a few hundred bucks, so WSJ suggests getting yourself into ETFs or exchange-traded index funds. The name speaks for itself. ETFs are mutual funds that are traded on the stock market and can be purchased just like any other stocks.

Some interesting ETFs that WSJ recommends to look at are Vanguard Total Stock Market ETF (tracks U.S. stock market) and iShares MSCI EAFE (tracks foreign markets). They also listed four low-cost internet stock brokerages such as ShareBuilder and FolioFn. What’s surprising is that none of the brokerages that they list actually sell ETF funds, or at least those funds that they suggest. Update: I got an email from ShareBuilder which mentioned that they do in fact offer ETFs including all those listed in the article.

I looked into it and Scottrade, the service I use, sells a wide variety of ETFs as well.

DRIPs

Cool name, I know. DRIP stands for Dividend Reinvestment Plan, which means you buy a stock and all the dividends the company pays out, get reinvested directly into the stock. This allows the investor to own partial stocks in companies in case they can’t afford to invest too much. Such plans also require a steady contribution of $25 or $50 monthly.

I first came across DRIPs a while ago when doing investment research and never really liked them. But just because DRIPs are not for me, doesn’t mean they’re not for you! In U.S., about 400 companies sell such stocks directly to the investors, but they usually get tagged with some small fees. Again, I’d rather go the traditional way, than this cumbersome plan.

Invest in your country

If you’re risk averse, you should consider investing into Treasury bonds or savings bonds. Investing into your government will make you feel nice and warm and patriotic inside and also add nice risk-free investments to your portfolio. Treasury bonds start at $1,000 while savings bonds can cost as little as $25, but they offer smaller returns. Check out TreasuryDirect.gov.

Summary

WSJ article also mentions some other things such as low-cost mutual funds, so if you picked up todays print, read the rest on page D1.

I didn’t of course talk about good old investment into regular stocks. If you can afford it (and again, it doesn’t take much) it’s a good place to start as well. A good idea is to open up a test portfolio (free at any finance websites) and monitor your fake investments over some period before making the final plunge.

Remember, a well diversified portfolio will eliminate most (if not all) unsystematic risk, so be smart when buying securities. If you’re investing into commodities such as oil, also buy stock in an airline to offset losses when oil prices fall (as airlines will benefit from the cheaper oil).

Ask for advice! Ask your parents, ask your friends and ask their parents. Ask people that know stocks, work in the industry or simply care about their financial future.

Good luck.