Start Investing With Just $100 (article review)

I've been reading MSN money and I noticed something in the investing section. It's called investing basics. I went to that section and this link particularly caught my interest.Start Investing with just $100
http://articles.moneycentral.msn.com/Investing/StartInvesting/StartInvestingWithJust100.aspxIs this a good tip for beginning investors?Thanks!

I would say the article is both pretty good and also somewhat dangerous all at the same time.

Pros:


  • People do perform badly because of the culprits he outlines:

    • Market Timing - people are bad at it on average

    • Buying High and Selling Low - people often panic and try to "cut their losses" - a loss is still a loss

    • Failure to Diversify - especially for those with a company 401(k)



  • Graph clearly illustrates the need to diversify

  • Explaination of ETFs versus mutual funds

  • Discussion of diversification in respect to losing asset classes


Cons:

  • Does not issue warnings about when to start investing!!!

    • You could be making killer earnings (think 15% a year!) but if you have credit card debt, you more than erase all those earnings.  Pay down your high interest debt!  And of course if you're making a more down to Earth 8-9% you're losing money big time.



  • Lacking any discussion of bonds until very late in the article with no real explaination of their benefits

  • DISCUSSES NEITHER 401(k)s NOR IRAs

    • Whether to put your money into a 401(k), IRA, or Brokerage account depends on your short-term and long-term goals

    • Depending on your goals, the brokerage account may be a big-time mistake especially considering the penalty-free withdrawl provisions for different IRAs and/or the free money you may get from your employer for a 401(k).



  • He does not discuss why these particular ETFs

    • What are the pros and cons?

    • Why this particular breakdown?  17% in bonds seems quite conservative for youth which I assume is the target audience



  • Not being distinctly clear you NEED to ride out the fluctuations and not "cut and run" as our President loves to say

    • You need to stay in.  Cutting could rack up Short Term Capital Gains which will seriously cut into your balance.

    • Not to mention those commissions come into play again when you sell!



  • The article does not discuss at all when to buy

    • It looks to be $100 a month for 1 year getting you the $1200 he illustrates

    • Further confirmed by the 4% comissions on the $1200 (which means you lose $48 right off the bat)

    • I'd recommend a high interest savings vehicle for 1 year and making your purchase at the end of the year

      • Check ING Orange, HSBC, E*Trade Savings, Citi Ultimate Savings etc. all over 4% interest

        Assuming you're in the 25% tax bracket that leaves you with $20-21 after taxes

      • If you then make your purchases according to his plan you spend 5 ETFs x $4 = $20 on commission leaving you $1200 to put into your investments rather than $1152 (granted, you may be able to make the same amount on gains and dividends depending on the market, but I would prefer the sure thing to reduce trade commissions - even more of a big deal if you go with anyone other than ShareBuilder.com which charges more than $4 per trade)