How Much Does It Cost to Start a Stock Portfolio?

by Tim Plaehn Google

    If you own more than one investment, you have a portfolio. Your portfolio can start with the purchase of shares of one company, and you can build it by adding other stocks as you have money available to invest. You can start with as little as a few hundred dollars.

    Portfolio vs. Individual Stocks

    You buy shares of individual stocks because you believe those shares provide an attractive investment potential. When you start building a portfolio of individual stocks, the focus shifts somewhat toward diversifying the return potential. Since different stocks and different market sectors will give different investment returns, to build a portfolio you want to look at stocks from different kinds of companies. For example, owning shares of a technology company, a finance company and an energy company provides a more diverse portfolio than buying shares of three hot tech companies.

    Opening a Discount Brokerage Account

    Online discount stockbrokers let you buy shares of stock with commissions in the $5 to $8 range for each transaction. Some brokers let you open and account with a low initial deposit -- $500 or less. With a discount brokerage account, you can buy shares in any whole number. For example, you could buy five shares of a $50 stock for $250 plus commission. When buying a small number of shares, even the low online commissions will be a significant percentage of the money invested and the stocks you own must increase substantially in value to offset the commission costs.

    Direct Purchase Plans

    Many companies offer direct purchase plans for investors who want to buy shares using monthly investments and reinvestment of dividends. These programs are also referred to as dividend reinvestment plans. Each company sets the terms of its direct investment plans, but a typical setup requires a $250 initial investment and monthly electronic investments of at least $50 to $100. Investment amounts and reinvested dividends buy whole and fractional shares. As an example, with $1,000 you could start a portfolio of four direct purchase stocks and build that portfolio with $400 of additional monthly investments. Costs on direct purchase plans range from no cost to monthly fees that rival discount brokerage commissions.

    Incremental Purchase Plans

    A few brokerage companies offer incremental stock purchase plans that work like direct purchase plans. With these plans, you send in a dollar amount and the money buys whole or fractional shares of stocks you have selected. For example, you may decide to invest $200 per month with the money divided into three different stocks. The amount you invest and number of stocks purchased are your choice. For this service the brokerage firm charges a flat fee, typically $10 to $15 per month or per investment.

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    About the Author

    Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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