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Low Minimum Initial Investment Mutual Funds

Posted By Jim On 12/04/2008 @ 12:16 pm In Investing | 10 Comments

Every so often I get an email from a reader asking me whether they should open up a mutual fund account with a few hundred dollars or try to save up more before they enter the wild and crazy world of the stock market. My typical advice is that they should save up a little bit of money first because the minimum account balance required by many mutual funds is often much greater than a few hundred bucks. Even if you wanted to open up a regular brokerage account and trade stocks, it’s a bad idea because of commissions. Unless you trade for free with Zecco [3], even the $4.95 commission of TradeKing [4] would be disaster on a few hundred dollars.

However, in my Vanguard-centric view of the mutual fund world, I overlooked some firms offering funds with much lower balance requirements. Vanguard’s lowest offering is the STAR Fund (VGSTX [5]) at $1,000 but there are many mutual funds are need a mere $100 to start.

The quickest way to find them is to use Morningstar’s mutual fund screener [6]. You can set all sorts of factors but the minimum initial investment factor is listed under Cost and Purchase. While you’re there, I’d definitely set Load funds to “No-load funds only” (as in no sales commission) and Expense ratio less than or equal to: to “1.00%.” That will, as of this writing, get you that hits the screener maximum of 200.

As for which one is best, I’d just tick the 5-star setting and pick from one of the 26 results. There are several options in there that could yield good results. I’d ignore the YTD returns as a factor since all stock funds will have suffered huge losses (and bonds have eeked out tiny gains) this past year.

One caveat, the tool will list funds that are closed to new investors. Those who picked out the Fidelity fund listed in the screen above, the Fidelity Congress Street fund, will notice that it’s closed to new investors.


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[3] Zecco: http://www.bargaineering.com/articles/r/zecco.php?tag=lowMinMFs

[4] TradeKing: http://www.bargaineering.com/articles/r/tradeking.php?tag=lowMinMFs

[5] VGSTX: http://finance.google.com/finance?q=MUTF:VGSTX

[6] Morningstar’s mutual fund screener: http://screen.morningstar.com/FundSelector.html

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