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Question for the Money Doctors

Question submitted on May 14, 2012.

Question

how can i invest with little amount?

Answer

That is difficult to answer without knowing your objectives in investing or your personal situation.  For retirement, an IRA or a Roth IRA are good choices in terms of the account type.  Contributions to an IRA can be deducted on your personal return and withdrawals are taxed in the future.  There is not a tax deduction for contributions to a Roth IRA, however, subject to the specific rules with Roth IRAs, withdrawals are generally tax-free.

Either type of account can be opened as either a mutual fund direct account or a brokerage account, depending on your objectives.  A mutual fund account typically provides good diversification for small balances and is generally at a single company.  A brokerage account provides more flexibility to own a variety of mutual funds, and typically can hold individual equities or fixed income instruments as well.  However, the costs of a small balance brokerage account are usually higher, unless you trading infrequently.

If you are not saving within an IRA or Roth IRA, you can utilize the same options, mutual fund account or brokerage account.  The account can be registered to you individually or jointly if you are married.  Any earnings or income within such an account is generally taxable.


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