Step 1: Build emergency and retirement accounts
The most frustrating part of launching an investing program is likely to be that you've got a lot of goals but practically no money to address them. Worse, investment companies are often unwelcoming to those with hundreds, rather than hundreds of thousands, in assets. After all, the fees on small accounts would barely buy a broker a cup of coffee or cover the cost of mailing a prospectus.
The good news is that all of your goals can be addressed over time -- as long as you take them one at a time. And, thanks to automation, you can choose from a growing number of inexpensive options that let you invest small amounts in either individual stocks or mutual funds.
Let's start with strategy. You'd be wise to address two goals first -- your emergency account (which will keep you from having to move back in with Mom and Dad in case of a financial upset) and your retirement account.
Retirement, you say? Can't that wait? Not if you have access to a Roth IRA or an employer-provided 401k plan that offers matching contributions. Contributions to a 401k or similar plan are taken before taxes -- as if you never earned the money. That reduces your tax bill and makes it easier to afford to save. Better yet, many employers match your contribution at a rate of 25 to 100 cents on the dollar (up to certain amounts), turbocharging your return. Contributions to Roth IRAs are not deductible, but the money is tax-free when it's withdrawn during retirement.
In addition, both Roth IRAs and 401k plans allow penalty-free access to at least part of your savings under certain circumstances. That means you can use some of your long-term retirement savings to finance shorter-term goals, such as buying a house or financing college. In the meantime, you don't have to pay taxes on the investment earnings, so your money grows faster.
Once you have an emergency fund established, aim to set aside 10% of your income in a retirement plan (even a smaller amount will give you a head start). Then you can begin saving for other goals, such as travel, college tuition or buying a house.
Realize that if you marry, your emergency needs are likely to change -- but not double. If you've both got fully funded emergency accounts, pull out part of the emergency money and reinvest it to meet longer-term joint goals.
Now for the practical side of the equation: Where can you invest small amounts without paying outsize fees?
If you want to buy individual stocks, your best bets are ShareBuilder and TD Ameritrade. With ShareBuilder, you can buy individual stocks and exchange-traded funds for as little as $4 per trade. The brokerage has no investment minimums. TD Ameritrade also has no investment minimums and charges $9.99 per trade. In addition, it lets you buy and sell more than 100 ETFs without commissions. (See "Best online brokers 2012" for Kiplinger's latest rankings.)
Motif Investing allows you to buy baskets of stocks related to a single theme, such as companies that pander to pets or ones that are working on biotechnology breakthroughs. The commission is $9.95 to buy a "motif," or full basket of stocks, and $4.95 to buy or sell a single stock. You can invest as little as $250.
Folio Investing does much the same thing as Motif, but it creates portfolios around investing styles, such as small-company stocks and packages that own stocks and bonds, rather than themes. Its basic plan charges $4 per stock (and most portfolios include at least a dozen), or you can buy the "unlimited plan," which costs $29 per month for as much trading as you want.
If you want to buy a single mutual fund, consider Vanguard Star (VGSTX). It owns a balanced portfolio of other Vanguard funds that invest in both U.S. and foreign stocks and bonds. Star's annual fee is a modest 0.34%, and its minimum investment is just $1,000.
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