What is the minimum amount of money you usually need to invest in a fund? At www.mfea.com, you can access a list of fund companies that let you get started for as little as $25 per month. "It's easy to get...
"It's easy to get started in mutual funds. The average minimum initial investment is around $2,500, but many fund companies accept less, if the investor agrees to set up a monthly investment plan. At www.mfea.com, you can access a list of fund companies that let you get started for as little as $25 per month. (Click on Funds for $50 or less or small investment funds)," says Michelle Smith, the managing director of the Mutual Fund Education Alliance.
Another easy way to get started investing is to look for funds that offer automatic investing. Some people refer to it as dollar-cost averaging. It is like an installment-purchasing plan for a mutual fund. This is another low-cost way to start your investments. Many companies will waive or reduce the initial amount needed if you set up automatic investing with them. Automatic investing is a way to invest that forces you to budget and plan. You buy a fixed dollar amount of shares on a schedule, such as quarterly. This provides a kind of average as some quarters you buy a lot because the price is low and few when the price is high.
Once you start investing, a good way to grow your money is to reinvest any dividends that you receive. This is referred to as compounding. It is a great way to buy more shares that in turn, pay you more dividends. Compounding your dividends is a great long-term strategy.
Mutual funds have expenses and with some, there are fees that are paid up front when you purchase, such as sales charges. Studying the expense ratio, which according to Smith and the MFEA is "the ratio of total expenses to net assets of the fund and includes management fees, 12b-1 charges if any, transaction costs, the cost of shareholder mailings and other administrative expenses." Buying no-load funds is the cheapest way to diversify your portfolio.
Other items that you want to be aware of are the turnover rate for the fund. This is the percentage of the fund that is sold each year. A high turnover rate can mean the fund is struggling to find its niche and profit. To help protect your money, look at funds in well-known families such as Vanguard and Fidelity. They may not have everything, but you should be able to get good advice and stability as they have been around a long time.
"Mutual funds provide a great way for any investor to reach lifetime goals. The key is to begin by setting your goals...what are you trying to accomplish? (retirement?) What is your timeframe? (how long do I have until I need the money?) Ask yourself, how much risk am I willing to take? (the most stable investments such as money markets may not provide the growth needed to reach your goal, but they do not fluctuate in value as much) Get started early...the longer you have to invest, the greater the potential for growth over time. Invest regularly...many companies offer automatic investment plans that let you invest a little each month...with compound growth over time...the results can be nothing short of amazing (it's called dollar cost averaging). These are all simple, easy steps anyone can take to be successful in investing," says Michelle Smith of the Mutual Fund Education Alliance.
