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One Small Step

Jonathan Clements  |  March 9, 2018

IN NOVEMBER 2006, I WROTE an article for The Wall Street Journal about how to get started as an investor, even if you didn’t have much money to spare. The article was read by Charlie Cutelli, a high school teacher and coach in St. Louis, Missouri.

“At the end of the article, there was a nugget about T. Rowe Price waiving the $2,500 minimum ‘if you commit to socking away at least $50 a month through an automatic investment plan’,” recalled Cutelli in an email he sent me earlier this week. “On April 20, 2007, I began dumping about $100 a month into a fund or two. As a poor teacher, I never expected to accumulate too much. But with consistent automatic investments, I finally cracked the $100,000 mark about two months ago.”

T. Rowe Price, alas, no longer waives its investment minimum for investors who sign up for automatic investment plans. Are you on a tight budget and looking to get started as an investor? Today, my top choice would be a target-date retirement fund that holds a globally diversified portfolio of index funds. That way, you minimize investment costs, get a broad mix of stocks and bonds in a single mutual fund, and avoid the high likelihood of market-lagging performance that comes with actively managed funds.

Target-date index funds are available from Fidelity Investments, Charles Schwab and Vanguard Group. Keep in mind that Fidelity and Schwab also have target-date funds that are actively managed; I would avoid those. Also note that you can use target-date retirement funds for goals other than retirement. I opened Vanguard target-date funds for my two children and two stepchildren, with an eye to helping them save for house down payments.

Schwab’s target-date index funds have no minimum, while Vanguard requires a $1,000 initial investment. Fidelity is a little steeper: You need $2,500 to open an account. Schwab’s funds charge 0.08% of assets per year, or eight cents for every $100 invested. Vanguard levies 0.13% to 0.15% and Fidelity’s fee is 0.15%. My advice: Get an account open, add $50 or $100 automatically every month—and a dozen years from now, you’ll be writing me a happy email, just like Charlie Cutelli.

Want to explore other options? If your taste runs to actively managed funds, check out the low-minimum possibilities at Artisan Partner Funds, Buffalo Funds, Homestead Funds and Nicholas Company.

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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