How cash-strapped investors can break into the stock market
There are cost-effective options for investment-minded people who don't have much money socked away.
If you're looking to make a small initial investment in a mutual fund, Wall Street won't come flocking to your door. What about Vanguard, a favorite of investors looking to save on fees? With the exception of one of its more than 80 funds, consumers need at least $3,000 for a single lump-sum investment. Fidelity? The minimum starting investment for most IRA accounts is $2,500. T. Rowe Price? The lowest first-time investment in a taxable account is $2,500.
America's major mutual fund companies, it seems, simply aren't very interested in very small investors, making it hard for them to make investment proceeds off the dollars they do have available.
"It reminds me of when I was 16 and looking for jobs, and all the places I applied to said 'prior experience necessary.' But how do you get it if it's never available in the first place?" asks Jeff Seely, chairman and CEO of ShareBuilder Corp., which targets small investors with low-cost stock purchases.
But there are options for investment-minded people who don't have much money socked away. If they make the right choices, cash-strapped investors can find ways to get into stocks, bonds, and, yes, mutual funds.
The easiest and cheapest approach may be to simply open an interest-bearing savings account or buy a treasury bond. These investments may be just the ticket for someone with only a few hundred dollars to invest - a young worker without a workplace 401(k) account, for instance.
"There are lots of high-yield savings accounts," says Robert Brokamp, editor of Motley Fool's "Rule Your Retirement" newsletter, who recommends one offered by Internet bank ING Direct that's paying almost 4 percent. "You can put in a small amount for free with no account minimum. Once that builds up, you can invest in stocks."