Starting to Invest

IF YOU DON’T HAVE much money, it can be tough to get started as an investor. Many brokerage firms and mutual funds require an initial investment of $2,500 or $3,000, and sometimes more. What to do? Consider these steps:

Fund that 401(k). If you’re in your 20s, there is a decent chance your first foray into investing will be through your employer’s retirement plan. That’s a great place to start, and not just because of the tax benefits and any matching employer contribution. You will likely find the plan includes a limited list of mutual funds, which makes the choice more manageable, and you don’t have to worry about meeting some required minimum initial investment.

Look for low-minimum funds. There’s no minimum investment required to buy some of Charles Schwab‘s mutual funds. Schwab’s fund lineup includes index funds, fundamentally weighted index funds and target-date retirement funds. Similarly, Fidelity Investments has no required minimum investment for its funds, which include a growing collection of index funds. For $500, you can get into the Homestead Funds and some of the Nicholas Company funds. Artisan Partner Funds and Buffalo Funds will waive their regular minimums if you agree to a $50- or $100-a-month automatic investment plan.

For $1,000, you can purchase one of T. Rowe Price Group’s target-date retirement funds in an individual retirement account, while $1,000 will allow you to buy a Vanguard Group target-date fund in either an IRA or a regular taxable account. If you have relatively limited savings, you won’t be able to buy many investments, so you should probably stick with mutual funds that give you broad market exposure—which is what you get with a target-date fund.

Buy exchange-traded funds. Instead of mutual funds, you could open a brokerage account and purchase ETFs. Capital One Investing, Merrill EdgeTD Ameritrade and Ally Invest (formerly TradeKing) have no required minimum to open a brokerage account. E*Trade will let you open an account for $500, while Charles Schwab requires $1,000, though Schwab will waive that minimum if you commit to adding $100 a month to your account. Some brokerage firms have a select list of ETFs that you can purchase without a commission.

Save for the house. To amass money for a future house down payment while also accumulating a pool of emergency money, try shoveling cash into a savings account or certificates of deposit. You won’t earn much interest these days. But given that you can’t afford to take much risk when pursuing short-term goals, a high return was never in the cards. Instead, your regular savings will be the key driver of the account’s growth.

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