The Amateur Financier

(Happy Easter, Everyone!  Here’s hoping you have a great day.  For those of you who happen to get some money as a gift, this guest post is surprising appropriate.  If you have just a little bit of money available for investing, here’s some advice on what you can do with it to build up your portfolio.  Good luck with all your investments!)

The Internet has done amazing things with respect to the lowering of transaction costs for financial decision-making. Thirty years ago, an investor would have a difficult time buying or selling a stock without going through a broker-dealer who could easily charge hundreds of dollars to make the trade. In such an environment, the small investor with only a $100 was left out of the market. Fortunately, that is no longer the case. When the government required the opening up of stock trading, commissions fell like a rock. Today, deep-discount internet brokers offer stock trading for under $10 a transaction. The world of finance has changed considerably and for the better.

But for a person with only $100 to invest, the decision of where to put this money in order to get a good return on your investment is still a difficult one. With such a small capital base, it is easy for commissions and fees to eat up an unacceptable percentage of your initial capital. So where can you put your $100? Below are a few options to consider, depending upon your willingness to accept certain levels of risk and reward:

Online Savings Account

If you want absolute security with your capital, you can always place your money in an online savings account like ING Direct. They currently offer an account with 1 percent interest with no minimum required. Therefore, it is an easy place to put $100 until you decide where you want to place your capital. Compared to other savings accounts, 1 percent is a significant return. However, this is not a place for long-term investors as 1 percent won’t even be able to keep up with inflation or taxes. That is to say, the real value of your investment will lose value over time.

Treasury Direct

The U.S. government has created a trading platform named Treasury Direct for small investors to buy treasury bills, bonds and savings bonds directly from the Treasury Department. Conveniently, the minimum investment for most of these savings vehicles is only $100. Even better, there are no commissions for making purchases of these bonds, ensuring that you get to keep all of your hard-earned money.

Treasury bonds do provide some tax benefits, given that they are not subject to local and state income taxes. As well, savings bonds can be tax-deferred for up to 30 years. At this moment, however, Treasury Direct does not provide for an IRA account option. Also, you can not sell your bonds from within the Treasury Direct account interface.

It is important to note that treasury bonds are not a path to immediate riches; even 30-year treasury bonds are offering less than 5 percent at current interest rates. This path is for long-term investors who do not wish to accept a lot of risk.

Discount Brokerages

If you are looking for a better return on your investments, you will have to able to accept the greater degrees of risk inherent in stock trading. And for that, you will need a brokerage account. Fortunately, there are now several brokerages offering very cheap commissions on stock trades. For instance, Sharebuilder allows for $4 stock purchases if you enroll in their automatic investment program. With this plan, you can quickly accumulate a sizable stock portfolio. It should be noted, however, that paying 4 percent of your capital on a commission is still excessive; at most, an investor should pay 2 percent of an investment on a commission. So if you are willing to wait to accumulate a bit more capital, you will get a better deal. But if timing is important, you can definitely go ahead make the trade.

Peer-to-Peer Lending

One of the great things about the internet has been its ability to connect to individual people together, whether it be through file-sharing or through the new business of peer-to-peer lending. Through sites like Lending Club, you can provide loans to individuals who are looking for money to start a business, buy a new car or just get out of credit card debt. You can search through a database of borrowers who have been vetted by Lending Club. Each potential borrower provides a plethora of information about their jobs, incomes and credit ratings. The great thing about Lending Club is that each individual lender only has to provide a fraction of the total loan amount, as little as $25 a loan. That means that a lender with $100 can make 4 separate loans, providing a bit of diversification for your investment. [Roger’s Note: Plus, Lending Club is doing a promotion right now where current members (like myself) can invite new members and said new members can get a bonus $100 to invest; drop me a note (using my ‘Contact’ link at the top of the page) if you’d like me to invite you.)  However, you run the very real risk of having a borrower default on their loan, meaning that you lose your investment with that borrower.

Starting a Business

By far the greatest power of the Internet is to provide potential entrepreneurs a worldwide audience at a minimum of cost. Indeed, you can easily get a basic web hosting package for under $100 a year, allowing you to host a website that can be seen by anyone with an internet connection. Even for those you don’t have the programming knowledge to build a website on their own, you can use an open-source platform like WordPress to easily build a blog. If you write frequently and become popular, you can put advertising on it from Google’s AdSense and receive a percentage of the revenue. This is not an easy path, but it could potentially be the most lucrative if you are willing to put in the hard work (and get a little bit lucky).

Whatever route you decide, understand that the Internet gives a small investor with only $100 a lot of options to invest profitably. The ultimate decision depends upon your willingness to accept risk and the desire for a certain level of returns.

Marc Mackenzie is a freelance writer who normally reviews checking accounts over at CheckingAccount.Org. He recently wrote about the best checking account promotions available right now.