Beginner Investing: You Really Can Build a Nest Egg

Investing today is no longer the exclusive territory of folks who are already wealthy. Even if you have very little extra cash and wouldn't know a financial advisor if you tripped over one, you can still empower yourself to live well in your retirement years. And all you need is a little determination.

Creating seed money

Would-be investors often put off their beginner investing plans because they don't have any money. Don't let this happen to you. In investing, time is precious; the sooner you start, the more aggressive you can be. Try these strategies to raise the money you need right now:

1. Sell old electronics and books on Amazon; unlike eBay, Amazon charges you nothing until your item sells
2. Clean out your closets and hold a garage sale
3. Cancel your land line and rely only on your cell phone (or vice versa)
4. Clip coupons and keep track of what you save
5. If you routinely get a tax refund every year, adjust your withholdings to increase your take-home pay
6. Recycle your own cans and bottles

If none of these sound viable to you, you still have no excuse for not investing. The Making Work Pay tax credit that went into effect this year should already be sending you home with a bigger paycheck; save up that extra money for two months and you'll have enough to get started.

Beginner investing on the cheap

You can begin your investing program with almost any dollar amount larger than $20. Let's say you've sold an old PDA and canceled your home phone line to raise $100. Before you decide how to invest that $100, you have to open a brokerage account. The right account will have low trading fees, no account maintenance fees, no inactivity fees and no minimum opening balance requirement. Options include:

1. Zecco
2. ShareBuilder
3. Siebert

When researching brokerage accounts, pay attention to the cost of mutual fund trades, because it's likely to be different from the cost of stock trades. Discount brokerages usually offer a selection of no-fee mutual funds that can be purchased for free. Pay attention to the options included in that selection, because you'll want to keep your trading fees to a minimum.

Achieving diversity with funds

A common challenge for beginner investors is achieving diversity. Diversity is important because it reduces your risk-think of it as keeping your eggs in several baskets instead of just one. Since you are launching your beginner investing program on a very small amount of money, you should consider buying mutual funds, index funds or exchange-traded funds; funds give you instant diversity.

Pay attention to the expense ratio of your prospective funds with the understanding that a lower expense ratio is better. Index funds tend to have low expense ratios. If you are at a loss for what to buy and you have a long-term investment focus, consider starting with a reputable S&P 500 index fund. This gives you a low-cost, diversified position in U.S. equities. Over time, you can round out your holdings by purchasing funds that represent other asset classes.

What's next

Plan on carving more money out of your paycheck over time for your investment account. The next time you earn a raise, allocate half of the increase to your investment account. Set up an automatic transfer from your checking account to your brokerage account to keep you honest on that promise. Increase the amount of the transfer with every pay increase. In time, you'll have a nest egg in the making-and perhaps you'll be advising on your friends on how they can start their own beginner investing program.