If you are looking for a place to invest that offers professional management of your money and gives you an instantly diversified portfolio, you might consider a high-quality mutual fund. While most funds require a sizable minimum initial investment, they allow you to add smaller amounts to your account once it is established. Some funds advocate making regular weekly contributions to your mutual fund as a wealth-building strategy.
Most mutual funds have at least two different minimum investment criteria, and some have more. The first criteria is the initial investment. Each mutual fund sets its own minimum initial investment, and while there are funds, such as the American Funds' Growth Fund of America, that let you get started with $250 or less, most funds require an initial investment of $1,000 or more. Mutual funds often have lower initial investment requirements for IRA accounts. Minimum amounts for additional investments are the second criteria. Minimums for additional investments are typically much lower, and some funds allow existing customers to add any amount. For example, the Fidelity Growth Company Fund has a minimum initial investment of $2,500 but does not have a minimum dollar amount for additional investments.
Your mutual fund company might offer the option of automatic investing. Once you authorize automatic investing, the fund will draft your designated bank or brokerage account for a set amount on a regular basis, which could be weekly, monthly, bimonthly or quarterly, depending on the fund's rules. With automatic investing, you don't have to remember to write a check, but you do need to make sure sufficient funds are available to cover the draft.
Dollar Cost Averaging
Dollar cost averaging is an investment strategy that involves regularly investing the same dollar amount in the same security. For example, you might contribute $100 to a particular mutual fund on the same day each week. The net asset value of your mutual fund shares will fluctuate up or down based on market conditions. By purchasing the same dollar amount each week, you buy more shares when the price is lower and fewer shares when the price is higher, resulting in a lower overall average cost per share.
Before you begin any investment program, you should count the cost. With many consumer goods, you tend to get a better deal when you buy in bulk. The same is true with investing. Many mutual funds offer reduced sales charges for large investments, so you might save money by making one large monthly or quarterly investment rather than smaller weekly investments. Some mutual funds don't charge a fee to purchase shares but might charge a redemption fee if you sell your shares within a prescribed period.
- USA Today: Mutual Fund Fees Add Up, So Don't Pay More Than You Must
- State Farm: Add to Your Account
- Fidelity Investments Institutional Services Company: Understanding the Potential Value of Dollar Cost Averaging
- Forbes: Mutual Funds 101
- USA Today: A Few Mutual Funds Still Let Investors Start Investing With Small Sums
- Fidelity: Fidelity Growth Company Fund
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.