An exchange-traded fund
John Maxfield: I believe the best way to invest $100 a month is to dollar-cost average into a low-cost exchange-traded fund. In fact, I believe this is the best way to invest irrespective of how much you can afford to do so.
Humans are designed to be bad investors. We make decisions using emotion as opposed to reason. And we suffer from a litany of behavioral biases that impair our ability to make rational financial decisions when they matter most. The net result is that most investors end up buying stocks when they’re high and selling them when they’re low.
One way to avoid this trap is to commit yourself to purchasing equal amounts of a stock at predetermined intervals — in this case, $100 every month. By doing so with a low-cost exchange-traded fund, moreover, you not only minimize the corrosive impact of costs on your returns, you also reduce your exposure to idiosyncratic risk — that is, the risk that a specific company’s stock will flounder while the market rises.