Most of us know how important it is to supplement our retirement with additional investment in traditional taxable investment accounts. Simply maxing out your IRA contributions and putting away 6% of your paycheck into the employer’s 401(k) just may not do it, but not everyone has the thousands that most investment advice requires. Here is a plan developed with the ultra-small investor in mind. It takes just $100, every month for a year.

When Should You Invest?

First, it is important to prioritize your financial concerns. If you have high-interest credit card debt, do not invest until you are debt free. While it is possible to make more money investing than you are losing on finance charges, it is highly unlikely. Your money is best spent lowering credit card balances.

Also, if you have no cash savings, you should consider putting this plan off until you have savings equal to at least three months’ salary.

Finally, if you would be devastated if you lost all of the money you invested, you should probably stay away from directly investing. While not likely if you are conservative, it is possible to lose all or some of the money you invest, no matter what the security.

Start Investing With Just $100

1. Open a brokerage account: Use a low-cost online broker. It’s important that you’re not paying more than $5 per trade, because that’s money that will be coming out of your investment. Also, make sure that the broker you choose has no minimum account balance, or fees will eat up your entire balance. For more about discount stock brokers you can visit our broker comparison chart.

2. Fund your account: This is where you send your first $100 to the broker via check, wire transfer, or ACH transfer. I recommend ACH transfer, which is like an electronic check, because a check will take a few weeks to process and a wire transfer is too costly for investing such a small amount.

3. Make your first investment: What you invest in is, of course very important, and professional investment advice is too expensive if you’re only investing $100. But studies have shown that the best returns come from widely diverse portfolios.

Now, you can’t easily have a widely diverse portfolio with $100, since that won’t even get you one share of Google (GOOG) or Toyota (TM). But Exchange Traded Funds (ETFs) make it easy to invest a small amount of money in a wide variety of securities, because they are shares in a larger pool of securities. The Vanguard Total Stock Market VIPER (VTI) tracks over 6,000 U.S. stocks, and it’s like investing your first $100 in the entire U.S. stock market. The iShares MSCI-EAFE (EFA) invests in stocks from Europe, Australia and Asia. The iShares Lehman Aggregate Bond (AGG) tracks the Lehman Brothers Aggregate Bond Index, and it’s like investing your $100 in the entire bond market.

If, after three months, you have put $100 into each of these funds, you will have a well-diversified portfolio that should withstand most of the market’s fluctuations. Losses in any particular sector of the stock market should be offset by gains in other areas of the market. Add to it each month, never investing less than $100 at a time, and you should see the value of your account grow just as the stock market does. If the market is struggling, then find ETF funds and other investments that will protect your money while you wait for the economy to regain its footing.

There are many ETFs to choose from and they are getting more diverse, including junk bond and commodities funds. Personally I would stay away from them until there’s at least $1,000 in stock and traditional bond ETFs, since the majority of your portfolio should include traditional investments, not alternative investments.

As you watch your investment grow (and then pull back, and then grow again) you should learn more about asset allocation and portfolio diversification, which are the keys to investment success. The more diverse your investments, the more you will be able to withstand volatile markets when stocks dip.

Finally, when the total value of your investment reaches $10,000, you should consider seeking professional investment advice and transferring your holdings to traditional mutual funds, which are a bit easier to manage, but typically have higher investment minimums.

I have outlined several questions that I have asked or heard people ask. I’ll start with a short description and will get into the questions soon after.

BRIEF DESCRIPTION

401K – This is an employee sponsored retirement program. People can invest in several options, chosen by their employer to grow tax free. The initial contributions are not taxed while the money you take out after the age of 59 and 1/2 is. One great thing about 401K’s are they allow your company to match your contributions and invest money for you. Some match 10% and some match 100%, it just depends. A lot, (almost all) companies match with a vesting period meaning that they’ll set the money aside for you but you have to work for them for a certain period and you’ll get more of what they set aside the longer you work for them. Where I work the vesting period is 5 years meaning every year I get 20% of what they set aside. If I work for 4 years I’ll get 80% of everything set aside even that which was set aside by my company during year 1.

Roth IRA – A Roth individual retirement account allows you to contribute money that is already taxed and take it out tax free at the age of 59 and 1/2. The money you put in is also unable to be tax deferred. These usually can be set up through most banks or investment institutions.

Traditional IRA – A Traditional IRA lets you have the option of putting money that is already taxed in or money that can be tax deferred into the account. Like a Roth IRA a Traditional IRA can be set up through most banks or investment institutions.

TAXES – WHEN AM I TAXED

401K – You are taxed on a 401K when you take the money out. This means that on your paycheck the money you have deferred to your 401K plan is not taxed by the federal government. The money goes into the 401K plan prior to Uncle Sam grabbing his piece. While in the plan your money grows tax free as non-taxable interest. Yippeee! Once you reach, currently, the age of 59 and 1/2 years of age and you begin to take the money out you will be taxed at your then current income tax bracket rate, whatever it may be.

Roth IRA – With a Roth IRA you put money in that has already been taxed and is not tax deductible. The money then grows tax free, so long as you don’t touch it. At the age of 59 and 1/2 you can then take the money out contributions and earnings (meaning all interest made, dividends, or other earnings) tax free. Super, Super!

Traditional IRA – A Traditional IRA has different tax standings from a Roth in that the money you put into the account can be tax deductible during the year that you put it in depending on your status. The money then grows, again tax free as long as you don’t touch it until maturity. Upon maturing at the age of 70 and 1/2 the money can be withdraw but both initial contributions and the earnings are subject to federal income tax. Depending on your status if you made non tax deferred contributions you may not be subject to income tax on withdrawal, maybe. The biggest difference is the deferring at the contribution stage.

HOW MUCH CAN I PUT IN

401K – For a 401K an employee in the year 2006 can contribute up to $15,000. This amount can increase on a year to year basis as the government sees fit following inflation. If your employer matches to some degree to your contribution there is also a limit of $44,000 total between your contributions and the employers. (If they match 200% like that though tell me, cause I want into your plan.)

Roth IRA – For a Roth IRA the contribution limits (how much you can put in) are $4,000 for 2006 and 2007 and $5,000 for 2008. Now if you are over the age of 50 the government allows you to play catch-up and add a little more. For 2006 and 2007 you may put in $5,000 and for 2008 it’s $6,000.

Traditional IRA – For a Traditional IRA the contribution limits are the same as those listed above for the Roth IRA.

WHAT CAN I INVEST IN

401K – 401K plans are sponsored by your employer and most of the time setup and run by an outside company. Your employer, with or without your suggestions, picks several investment options usually mutual funds, money market funds, and/or bond funds. You are then allowed to designate a dollar amount or percentage of your deferment to this funds. You can choose to have all your money go in one fund or have your money split up among several. You may also have the option to rollover the 401K in the event of a job change.

Roth IRA – A Roth IRA us just like it says, an individual retirement account where you can direct the money wherever you see fit. You usually have to set it up through a financial institution of some sort like a bank, fund manager, or stock broker. Also with the plethora of online brokers available an easy way to go is through one of them allowing you to invest easily in stocks for you retirement. The beauty of the Roth IRA is that you have a lot more options with what you want to invest in. You can put it in a simple investment account like a savings or CD through your bank, or you can get complex and setup an online trading account through a company like ShareBuilder and control the money essentially daily. With an IRA you are in control of that money on a daily basis, you can’t take it out without penalty but you can try and maximize your profits (although there is a lot more risk with this).

Traditional IRA – Like a Roth IRA you are in control of the account on a more day to day basis and you can invest in a wider variety of places. See above for more description on your options.

WHERE CAN I MOVE MY MONEY

401k – 401K’s are sponsored by your company and usually only have 5-10 funds you can choose from. You can probably change between the funds regularly but will have to suggest a fund to your HR department if they don’t have it. They can then evaluate it and see if it’s a good add to the program (works better for smaller companies.)

If you were to change jobs for any reason you are usually able to transfer funds from the previous companies 401K funds to your new companies investment options, so long as they stay in the 401K “shelter.” You also may be able to keep the money in the previous employers 4o1K funds but I haven’t heard of plans allowing you to invest from your new company’s paycheck into that old companies plan. Let me know if you can with yours.

Roth IRA – Roth IRAs are setup as individual accounts allowing you the freedom to open the account with the financial institution of your choice. This means you can invest in a savings account with your bank, a mutual fund with someone like Janus Funds, or stocks with a stock broker (like online brokerage firms.) You can do all this so long as you keep the funds under the Roth IRA tax shelter. You can also transfer accounts from one institution to another. changing what you invest in. An example of this is if you invest in stocks with an online trading company and then change your mind wanting a safer investment in something like a low risk mutual fund. There may be fees associated with this but you’ll have to check the specific company for details.

Also something you may want to check into that I am not sure if you can do is taking some of your funds from say your banks saving account Roth IRA to say your online brokerage Roth IRA. Not sure if you can transfer part of your account but it’s worth the research.

Traditional IRA – Traditional IRAs allow you the same investment options as a Roth IRA. Just read more about the differences below.

CAN I TAKE THE MONEY OUT EARLY

401K – With a 401K, like all other accounts you incur a penalty if you take money out prior to turning 59 1/2. If you do there is penalty. With a 401K the penalty is 10% tax on top of the income tax that you would pay depending on your income tax bracket. There are exceptions to this rule where you would only be assessed income tax like death, permanent disability, and other such extenuating circumstances.

There is however one option you may have if your employer allows it. If allowed you can take out a loan that has to be repaid with after tax income and at an interest rate defined by the people who run your 401K plan. The principle you took out as well as the interest you pay in become part of the 401K balance.

Roth IRA – A Roth IRA has several options to withdraw money from it. You can of course with draw money at the age of 59 and 1/2 tax free. If you want to withdraw earlier you can withdraw up to the total of contributions (the taxed money you put in) tax free. If you withdraw any earned income from the Roth IRA you will be assessed a 10% penalty tax plus income tax which you normally wouldn’t have been taxed from. Ouch!

You may also be eligible to withdraw the money, contributions and earned income, if you are making a first home purchase or a qualified educational expense. Check with the IRS for more details.

Traditional IRA – Penalties are similar to the Roth IRA but you should check in with the IRS for more details. Tax deferments on contributions can get tricky. Also the age you are forced to take money out is 70 and 1/2.

This is of course just a primer on retirement accounts. You should always check with your banker, employer, or an investment specialist when considering where to put your money. The options can be daunting and you should research your particular situation as much as possible. Read books, Google it, or whatever it takes. Some resources I found helpful are the Wikipedia and the IRS. Check these places out, they have more links to more pages as well.

Apple (Apple Inc AAPL) continues to gain momentum and is showing no signs of slowing down. The stock has also split twice since the late 1990s, so another split could be on the horizon, which would double your stock options and allow you to accumulate even more money.

The stock is a little expensive, but if you can get even 5-10 under your belt, then you will be sitting pretty. Apple continues to develop groundbreaking software and is at the forefront of all the latest and greatest technological advances around.

If you are looking for a fantastic way to build your wealth and get a great return of investment, then investing in Apple stocks is the way to go. You won’t get rich quick, but you will have made a solid investment for the future.

Websites

Having a website in today’s home based business world is crucial. A website will not only get your business looked at on the World Wide Web, but it will also give you access to millions and millions of people. You will be able to sell your products to customers all over the world, display updates and info regarding your company, and easily track incoming and outgoing orders.

Social Media

Facebook, Myspace, LinkedIn, Google Docs… These are all excellent ways to network about your home-based business. You can choose to use one or all of them, either way you will be opening yourself and your home based business up to a lot of views and questions. Get connected with hundreds of millions of different people and businesses by using social media platforms.

Blogging

There are literally hundreds of thousands of blog sites and free posting board sites that will allow you to submit a blurb and a link to your home based business. Many of these sites are free because they have so many views. You can even set-up your own blog, or network of blogs that will allow you to post articles and backlinks to your site. This is a great way to get more traffic to your website and in turn, gain more customers for your home based business.

Staring a home-based business can be difficult and challenging. Help make it a little less painful by using the technology platforms that are available to you.

I was recently put in touch with a website called Thrifty Scot to check it over and see what I think. All in all, a good site that provides useful knowledge and services for those of you looking to save a little money and increase your wealth.

First off, as we’ve mentioned before, you can stand to save a lot of money in the long run by purchasing a house rather than renting which means taking on a mortgage. Thrifty Scot has some useful information on mortgages that may just help you out of a jam and get the right rate and deal when buying that first home.

Another killer for some peoples wallets is how much they pay in car insurance. You need to pay attention to what the “sales people” are trying to sell you and knowing what you need and don’t need is half the battle. Let this site help you out.

Lastly, once you have your finances in order you may need to get a boost in cashflow and take on some loans. We suggest heading over and learning about a sucured loan before you do anything. It could save you a lot of money in the long run by allowing you to watch out for some of the pitfalls that so often come with taking out a loan for many things.

Most of all, just read, read, read. The more you know about saving money the better chances you have of making more of it and creating wealth for yourself.

Holding a 30-year Mortgage

If you have a 30-year mortgage, you could spend more than $100,000 extra dollars more than those with a 15-year mortgage.

Letting Someone Else Control Your Money

Know the details of your finances, don’t just turn it over to a broker, financial consultant, or spouse.

Failing to Control Leaks in Spending

Many Americans in debt spend their money in small amounts. If you plan to accumulate wealth, you have to stop leaks in spending.

Failing to Plan

If you don’t know where you are going and have no plan to get there, chances are you’ll never arrive. Write out your goals and visualize them.

Incurring Too Much Debt

If you spend all your money on interest on debts, you have nothing left to save. Pay cash and avoid credit card debt to pave your way to wealth.

Poor Retirement Saving Habits

Start early and save at least 10 to 15% of your income. Start today!

Taking Money From Retirement Funds

If you cash out or borrow money from your 401(k), chances are you’ll never make up the lost retirement savings.

The McGraw-Hill 36-Hour Course in Accounting by Robert L. Dixon and Harold E. Arnett

Own Your Own Corporation by Garrett Sutton

Courage to Be Rich by Suze Orman

The Millionaire Next Door by Thomas Stanley

Guerilla Marketing by Jay Conrad Levinson

More Wealth Without Risk by Charles J. Givens

Here’s a quick summary:

1. Don’t say “We can’t afford it”

Use the right language to teach your child about money. Help your children learn that they have choices about how to use the money they have. Use an allowance to help your child understand the concepts of spending and saving.

2. Show them the money

Use cash as much as possible and educate them on credit cards if and when you use them. Talk with them about your checking and savings account balances as well as any credit card balances or outstanding loans. Let them help you make payments and do simple bookkeeping.

3. Talk about how much things cost

Discuss today’s expenses with your child as they occur. Give your child ideas about money that they can understand, relating costs to values they can grasp. Children pick up a lot about finance just by discussing it regularly.

4. Buy something that isn’t on your list

Sometimes we need to be flexible and buy things off the list. Being smart with money can also mean spending wisely, taking advantage of a sale or capitalizing on an unplanned opportunity.

5. Be open with your spouse about money

Some partners hide spending to avoid criticism from the spouse. Kids learn distrust from this and that money is a secretive topic even within one’s own family. Take steps to foster the right kind of attitude about money in your child.

Here’s the entire article.