Leena from Maine asks:

You’re referring to this article in which we advised Matthew, a young Navy sailor serving in Iraq, to invest in the Vanguard LifeStrategy Growth fund via an auto-investment plan. Matthew was starting out with just $2,000 (while adding $500 per month), and we told him to invest in this single Vanguard fund because it would give him a high degree of diversification (this particular fund is a collection of funds that owns other Vanguard funds) with a low initial investment requirement.

We told Matthew to stick to the Vanguard LifeStrategy Growth fund until he had grown his portfolio to $15k, then to come back to us to discuss where he should go from there. While the fund has risen more than 5% since Matthew asked his question back in November, we’re pretty sure he hasn’t reached the $15k threshold yet – but we’re guessing he wouldn’t mind if we answer your question in the meantime. You are starting out with more money than Matthew, but you are facing similar problems. Every investor, no matter how much money they are starting out with, should aim for certain goals when building an investment portfolio: diversification, low fees, and the right risk level.

One aspect that makes investing so frustrating is the unpredictable pattern stocks follows. The market is like a drunk stumbling home from a bar - you can’t expect a straight path, but you can be reasonably sure of the final destination – home.

Katherine from California asks:

Most people don’t start investing until they have more money to invest. However, investing smaller amounts of money for a longer time period can be even more beneficial than investing larger amounts later in life.

It sounds impossible, but $20 invested today could be worth $500 when you hit 70 years old – and that’s using a fairly conservative growth rate below the historical stock market return.

Sadly, it can be difficult to invest small amounts of money. While you can always save in a bank account or even in a money market mutual fund, you’ll get a bigger bang for your buck in a lower fee mutual fund that invests in stocks. Mutual funds allow a small investor to invest in dozens of stocks for a reasonable fee.

Most good mutual funds require investors to fork over $2,500 to get started, although there are many good ones that require $1,000. Better for your situation, some waive the minimum if you agree to invest a small amount of money each month.

Last month we shared the unfortunate news that Scottrade is raising their mutual fund buying fees. This month we will go into greater detail about the alternatives to Scottrade.