3 Ways to Avoid a Mutual Fund’s Minimum Investment

For those just starting to invest, a mutual fund’s minimum investment requirement can be a difficult hurdle to clear. With some funds requiring initial investments of $3,000 or more, it can take months or longer just to invest in a single mutual fund. There are alternatives.

Three of the more common approaches are to buy shares of ETFs, find low minimum mutual funds, or to use a robo advisor.

1. Buy ETF Shares

Here’s a tip I picked up from Matt Krantz of USA Today. Most mutual funds require a minimum initial investment. Even most Vanguard funds have a $3,000 minimum. When I started investing a long time ago, you could bypass the minimum investment requirement by agreeing to an automatic investment plan. Today, this option is often not available. So if you want to invest in a fund, but don’t have enough money to meet the initial investment requirement, turn to an online discount broker instead.

With discount brokers such as Scottrade, TradeKing, or OptionsXpress, you can invest in an Exchange Traded Fund (ETF) for about $5 a trade. For example, rather than buying Vanguard’s S&P 500 fund (VFINX), an investor could purchase shares of Vanguard’s Large Cap ETF (VV). And while you do have to pay a few dollars for each trade, the cost is no more than an expensive cup of coffee at Starbucks, and the expense ratios of ETFs are generally lower than the cost of the mutual fund counterparts.

2. Find Mutual Funds with Low Minimum Investment Requirements

Schwab Mutual Funds: Schwab offers index funds with a $100 minimum investment.

TIAA-CREF: The minimum investment is $2,500. For those who sign up to automatically invest each month, the minimum drops to $100.

Dreyfus: As part of the Dreyfus Automatic Asset Builder, the minimum investment is $100 with automatic transfers from a bank account each month.

Nationwide Mutual Funds: The insurance company also manages mutual funds. These funds allow for no initial minimum investment as long as you signup for Nationwide’s Automatic Asset Accumulation plan and invest at least $50 a month.

T. Rowe Price: Its Automatic Asset Builder lets you invest for just $100 a month.

3. Consider Robo Advisors

There are several technology companies that have made investing both easy and inexpensive. These firms offer a diversified portfolio of low cost funds with little to no minimums.

Betterment: Perhaps the best known, Betterment makes investing as simple as picking how much you want invested in stock ETFs and how much in Bond ETFs. From there, Betterment invests in about a dozen low cost ETFs. They also rebalance and reinvest dividends automatically. There is no minimum investment or minimum balance required. You can see my review of Betterment or go directly to Betterment for more details.

Acorns: One of the newest and most interesting of the technology advisors, Acorns takes minimum investments to a new level. Once you sign up, it tracks purchases on your credit cards. It then rounds up the purchases to the nearest dollar. Once the balance reaches $5, Acorns transfers this amount from your linked checking account and invests the amount in a diversified portfolio of ETFs. You have significant control over the investment options, and the service is easy to use and reasonably priced.

Motif Investing: Finally, Motif offers diversified investing in stocks or ETFs with a minimum investment of just $250. It offers thousands of investment combinations. I had the opportunity to interview Tuhin Ghosh of Motif. You can also check out Motif for yourself.

Next–>How to Invest with Little Money

Published or Updated: October 22, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Thank you so much for showing people a way around the required minimums. It is so disheartening when you want to invest, but don’t feel as though you are rich enough to do so. Even billionaires have to start somewhere.

  2. Manshu says:

    Thanks for linking back to the OneMint carnival :)

  3. Mack jackson says:

    Thanks for sharing such great post, it will help many investors to get info about mutual fund investment.

  4. Moss says:

    I’m sure it goes without saying, but… you do know that you are suggesting exchange traded funds are the same as a mutual fund. They are not. It also seems that — even with a low commission from a discount broker online — the total expense to use this method of accumulation rules out a prudent choice.

    Don’t get me wrong – I understand the need for higher minimums. But grabbing $100 worth of an index tracking ETF 30 times will cost > 150 bones. $150 / $3000 (the Vanguard minimum) totals a cost to buy expressed as… … 5 percent!

    People need to realize that there are two costs involved:

    1) Cost to buy
    2) Cost to own

    I think Mr. Krantz overlooks (or at least doesn’t account for) this.

    Now, I espouse the use of ETF’s, mutual funds and individual securities, and the economies of scale apply, yet we cannot be penny wise and pound foolish.

    Accumulate the minimum in an interest bearing savings account and pass on the coffee. In the end, the interest earned will (may?) treat a couple to a fine evening out. At least the commission savings will, and THAT is not a bad investment.

    Moss
    NASD Series 7 and 24
    SEC Series 65

    • DR says:

      Moss, the point is that mutual funds and exchange traded funds ARE different. Agreed that you pay a cost to buy and sell ETFs that you won’t pay with no load funds. But if you are a long term investor, the ETFs can be better in the long run because of the reduced expense ratio as compared to comparable mutual funds.

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