Homestead Small-Company Stock Fund

Here it is, my first Portfolio Pick.  I must say I really thought about playing it safe.  "Start off with an index fund" I thought to myself.  So I went through my list of affordable investments looking for such a fund.  This little gem caught my eye; I couldn't pass it up.  So I decided to go another direction and kick off Portfolio Picks with the Homestead Small-Company Stock Fund (HSCSX).

 Performance of the Homestead Small-Company Stock Fund (in blue) vs. the Russell 2000 Index (in green) and the S&P 500 Index (in red).  Graph captured from Yahoo! Finance (8/3/2011).

I like small company stocks.  Many of them have potential to become the industry leaders of tomorrow.  This, of course, results in huge gains for an Affordable  Portfolio.  Consider these following examples:

• Walmart (WMT) was once a single five and dime store in a small town in Arkansas
• McDonald's (MCD) originally operated as a hamburger stand run by two brothers
• Microsoft (MSFT) was founded by two childhood friends to design software for a hobby kit computer

Now these companies are the behemoths of their respected industries.  I personally  know a lot of people who wish they could travel back in time to 1986 (when Microsoft went public).

Small companies as a whole are more volatile than their larger brethren.  That's why it is best to jump into them through a fund.  This particular fund does not disappoint.  It carries a five-star rating from Morningstar; it gets a "1" (strong buy) from Zacks.

HSCSX only requires a $500 minimum investment ($200 for IRA's).  However, the minimum is waived if the prospective buyer agrees to sign up for an automatic investment plan.  Interestingly, the minimum for such a plan is $0 ($25 sounds like a fair amount).  The account can not be opened online, so you would have to go to the website, download an application (don't forget the prospectus too), print it, fill it out, and mail it to the address listed on the form.

How I Would Invest:  Instead of putting the full $500 up front, I would start off with at least $100, but no more than $250.  I would then sign up for the plan at $25/month and let dollar cost averaging work its magic.  Those dividends and capital gains would also be reinvested.

As I have mentioned before, this is not a recommendation to buy.  It's up to you whether you should own this Portfolio Pick or not.  Consult a financial expert if you need to.  I currently do not own any shares of this fund.