Investing gets easier for little guys

By HANK EZELL

The Atlanta Journal-Constitution

It's getting easier for wannabe investors to get started without much money.

In years past, very few mutual funds would open a new account for anything less than, say, $500. Times have changed. Now scores of funds — including familiar names like T. Rowe Price and TIAA-CREF — will accept initial investments as low as $50.

You get in that door by promising to be a regular investor under an automatic investment plan. Usually that means you commit to monthly investments, deducted automatically from your checking account.

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The idea may be timely, if you're looking for an investment-related holiday gift or if you soon will be looking for an affordable New Year's resolution.

Automatic investment plans are a good idea because they commit you to making regular investments, which is the best way to start building a nest for your egg.

Also, the plans apply the admirable principal of dollar-cost averaging. That means you buy more shares when they are relatively cheap and fewer shares when they are more expensive.

Over the long run, you can expect your average cost per share to be lower.

On other hand, you will have to be steadfast about keeping records of your purchases.

You'll need them when you get ready to sell. It's not at all complicated, because you will get regular statements and a year-end roundup from your mutual fund manager. Just don't lose them.

Pick diligently

Choosing the right fund requires some care. It's true that there are tens of thousands of mutual funds out there, but a relatively small number will make your low-dollar shopping list.

If you're a young person just beginning, you should consider limiting your search to funds that invest primarily in stocks.

Try to stick with no-load funds — those that do not extract an upfront charge for each investment.

Look closely at operating expenses. Among more than 8,000 domestic stock funds available to ordinary investors, the average annual expense is about 1.6 percent. That comes out of your account, and it's too much. One way to bring down the cost is to stick with index funds, which aim to be average and which avoid most expenses.

Check out each fund's stock-picking strategy. Index funds try to mimic the performance of a particular index. Some managers specialize in stocks of large companies, midsize ones or small ones.

Some try to buy stocks when they are cheap; others buy stocks of companies with impressive growth records. That's just the beginning — there are many other categories, niches and crannies.

Risk a factor

One other thing: Consider how much risk you're willing to take.

You can find risk ratings at a number of places, among them www.morningstar.com. Go to the Mutual Fund area or directly to screen.morningstar.com/FundSelector.html.

Using Morningstar's selection screens, start by setting Minimum Initial Purchase to less than $500, the lowest level provided. You can use the other search criteria to trim the list to a comprehensible size.

A second useful Web site is www.mfea.com/FundSelector, maintained by a nonprofit trade group. Here you can screen for funds that accept a minimum initial purchase as low as $50.

Here are some selections from those Web sites:

• Fidelity Capital Appreciation. Invests mainly in large growth companies, including technology, and dabbles in small-company stocks. "Would-be investors should therefore be prepared to ride out some volatility," Morningstar analyst Christine Benz wrote in a recent commentary. For more from Benz, go to news.morningstar.com/doc/article/0,1,120753,00.html.

• Pax World Balanced. Invests in both stocks and bonds; screens out tobacco, liquor, gambling, defense and weapons-related companies. Minimum automatic investment is relatively high, $250, and there is a small sales charge.

• TIAA-CREF Equity Index. Tracks the Russell 3000 Index — the 3,000 largest publicly traded U.S. stocks. "Investors seeking one-stop U.S. stock exposure would do well to give this fund a look," Benz wrote. Morningstar says it has had above-average returns with average risk.

• T. Rowe Price Equity Index 500. Tracks the Standard & Poor's 500 Index. Historical profile: above average return, average risk. Annual expenses reported at 0.35 percent. Others offer lower expenses, but you can get into this one for $50 on an automatic investment plan.

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