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The good news about investing is that African Americans are now more involved with the market than at any other time in the past. The bad news is that there are still quite a few blacks who are not taking advantage of the opportunity in the belief that investing is too complicated and that it requires a lump sum of money to get started. But investing is easy and the amount of money needed insubstantial.

A 35-year-old who is a single mom and a career professional making approximately $75,000 a year is not investing or participating in any retirement plan. But she has a savings account that she contributes to on a periodic basis to put her child through college. What she doesn’t realize is that her contributions would have a better appreciation value if she participated in any of the investment plans listed below.

These are a few investment ideas for the small investor: 

Employer 401(k).

Your company’s 401(k) plan is a great way to start saving for retirement. A 401(k) plan is a defined contribution plan offered by a corporation to its employees. The plan allows employees to set aside tax-deferred income for retirement purposes. The name 401(k) comes from the IRS section describing the program. Some companies give their employees an incentive by matching a portion of their contribution. Ask your company’s plan administrator for information and advice. A plan can match with dollars or with company stocks. If your employer matches with company stocks and if the firm is in a growth industry or has been profitable, this is a good way of adding to your fund.

When you begin your 401(k), remember that you also have to tell the plan administrator where you want the money invested. The options the plan gives you are usually mutual funds and are more likely to be a family plan such as Fidelity. Companies such as Fidelity offer a number of different types of mutual funds. The funds may be invested in fixed income (bonds) or equity (stocks). These types of securities can be broken down further into technology funds (stocks) or government bond funds (bonds). A novice should, therefore, check with a financial planner for assistance. Better still, educate yourself by reading books and attending seminars on investment.

Mutual Funds.

The best way to start an investment program is to buy into a mutual fund family. A mutual fund is operated by an investment company, which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. One of the benefits includes professional money management. Shares are issued and redeemed on demand, based on the fund’s net asset value, which is determined at the end of each trading session. A mutual fund provides the investor with diversification, which is a good strategy for downside market risk. Many funds have plans that allow the investor to buy on a regular basis.

The plans can be deducted out of your banking account on a monthly basis or it can be deducted from your employer payroll check. If you wanted to invest $100 a month, for example, your employer will pay on a biweekly basis. A mutual fund can credit $50 twice a month to your mutual fund account. The great benefit is that you are investing before you get your hands on the money and you can’t spend what you don’t have. Not only are you paying yourself first, your money is working for you. A $100 monthly investment for 5 years with an annual 10 percent rate of return is just over $8,000. If you just banked this amount on a monthly basis, the value of your account would roughly be $6,500 at an interest rate of 3 percent in a savings account.

When choosing a mutual fund, look at the fund prospectus which tells you the fund’s objective, what type of investment style the money manager has and a sample of the company names that it may invest in. You should also look at any fees the fund charges should you change from one fund to another within the same family of funds. Many mutual fund families do not charge for this type of change in investment strategy.

DRIPs (Direct Re-Investment Programs).

A DRIP is an investment plan offered by some corporations enabling shareholders to reinvest cash dividends and capital-gains distributions automatically, thereby accumulating more stocks without paying brokerage commissions. Many DRIPs allow the investment of additional cash from the shareholders, known as an optional cash purchase or Dividend Re-Investment Program whereby the investor purchases stocks directly from the company. There are no commission fees and there is the benefit of dividend reinvestment. Any dividends that the company pays will be reinvested by purchasing the stocks. The plan charges a very small service fee for each investment. There are several companies that have automatic debit plans into which mutual funds can be credited to an account or you can also buy stocks on a regular basis. When you invest chunks of money at regular intervals systematically, this is called dollar cost averaging.

With some DRIPs you may have to start with a small lump-sum amount—$100 to $500—to open your account. After that initial investment, you can have a small amount such as $10 to $100 deducted from your bank account. There are several plans that waive the initial investment if you have regular monthly investments going into the plan. Examples of these companies are Aetna (AET), Campbell Soup (CPB), FedEx Corp (FDX), Ford (F), International Business Machines (IBM) and Wal-Mart Stores (WMT).

ShareBuilder Plan.

A Share-builder Plan is for anyone who is looking for a simple, flexible and affordable way to invest in the stock market. This service lets you make automatic periodic investments in over 2,000 companies and indexed stocks. You can set aside a fixed amount to spend regularly on stocks or you can make a one-time stock purchase when it fits your budget.

The plan is great for the beginning investor or for starting college planning for your children. With this type of plan, you invest in dollars instead of in shares.

Sometimes it is difficult to get small investors to focus on the company and their future profits. Instead, some wrongly focus on the dollar amount that the stock is selling for. If a company sells shares for more than $100 each, some small investor may think that the stocks are too expensive to buy. But in investing, an important criterion is the profitability of the company. This makes the Share-builder Plan a great program in which to invest and many publicly traded companies are offered in this plan.

These are just a few ways that the small investor can get started in planning for her own personal wealth management and toward a better retirement. The key is to get started and get educated about the stock market. There is no better investment than the stock market for long-term investors.

This article was published in The Network Journal. Jodye Deal, contributed this article for the New York-based magazine.  If you have questions on investing, please send them to Investing@GazelleAssociates.com.

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