Mutual Funds:
Mutual funds are a shoestring investor's best friend. If you've ever pooled your money with your friends to buy a few pizzas and drinks, you understand the concept of mutual funds. They combine several investors' money to buy a variety of stocks that may be too expensive for the individual to purchase alone. This allows you to diversify your investments (you can get pepperoni, ham and pineapple, plus sausage and olives) while keeping costs low.
Most fund companies, however, require a minimum investment to get started, typically between $1,000 and $3,000. But the minimums to buy a fund for your IRA are usually lower. You can find several top-notch funds for your retirement account for as little as $250 to $500.
A handful of fund companies, including T. Rowe Price, TIAA-CREF and Scudder will even let you in for a measly $50 if you contribute that amount each month automatically from your bank account. Investing at regular intervals -- a trick called dollar-cost-averaging -- is a good idea no matter what amount you can afford, because over time it helps smooth out the volatility of the market on your portfolio.
You can use Kiplinger's Fund Finder to sort through mutual funds with low minimum investments that meet your individual criteria. Stick to no-load funds with low expense ratios (the average expense ratio for stock funds is about 1.5%). Here are a few suggestions to get you started:
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Selected American Shares (SLASX) invests in large undervalued companies and consistently outperforms the S&P 500 index. Requires $250 to open up an IRA. Returned 9.3% over the past year, an annualized 7.9% over the past three years, and 14.5% over the past ten.
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Homestead Value (HOVLX) invests in beaten-up shares of large and medium-sized companies. Requires $200 for IRAs. Returned 13.5% over the past year, an annualized 8% over the past three years, and 11.4% over the past 10.
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T. Rowe Price Spectrum Growth (PRSGX) invests in ten other T. Rowe Price stock funds, giving you a good mix of stocks in small companies and foreign firms, as well as large companies. Requires $1,000 for IRAs, or regular investments of $50 a month. Returned 10.7% over the past year, an annualized 7.1% over the past three years and 10.9% over the past ten.
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T. Rowe Price Equity Index 500 (PREIX) invests in stocks to mirror performance of the S&P 500 index. Requires $1,000 for IRAs, or regular investments of $50 a month. Returned 6.7% over the past year, an annualized 4.4% over the past three years and 11% over the past ten.
To research mutual funds, please go to Morningstar.com and read a prospectus to make sure the mutual fund matches your needs, risk profile, and performance expectations.
You can buy funds directly from the fund company or through a broker.
STOCKS:
Small investors can get around brokers entirely by buying stock directly from a company. About 1,400 companies offer such programs. Minimums, fees and requirements vary. Coca-Cola (KO), for example, only requires a minimum of one share and doesn't charge an enrollment fee. Disney (DIS) requires $1,000 to get started and charges a $10 setup fee, but you can get in for as little as $100 if you contribute that much automatically each month. Get a full list of companies with the details of their plans at Netstockdirect.com.
Source: Erin Burt, Kiplinger.com.
