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Funds for a Pittance

OK -- so you've steered clear of investing in individual stocks because you don't have:

  • The time to research them and keep up with them.
  • The skills to study and evaluate them.
  • The interest. You'd rather be doing something else.

That's reasonable. Indeed, those who jump in without a certain degree of savviness, time, and interest often don't fare too well. So bully for you!

But wait -- if you stay out of the market, you'll miss out on a great way to build your wealth -- a way that, over the long haul, trumps most alternatives. The stock market's historic average annual return is around 10%. That's enough to increase your money nearly 1,000% over 25 years.

Fortunately, you can still invest effectively in the stock market via mutual funds. And if you're about to give me a reason why you can't do that, either, let me head you off at the pass: You don't need lots of money to start. Yes, some funds have minimum initial investment amounts of $3,000 or $10,000 or some other big number. But others have minimums of $500 or less. (And you can also use exchange-traded funds (ETFs) that trade like stocks, which you can buy as little as a single share of -- though the commission on that small a trade might make it not worthwhile.)

Consider the Columbia Mid Cap Value fund, for example, which sports a market-beating five-year average annual return of 18%, a low expense ratio of 0.87% on its Class Z shares, and recent holdings that included Hershey (NYSE: HSY  ) , Pepsi Bottling (NYSE: PBG  ) , and L3 Communications (NYSE: LLL  ) . Its minimum investment? $50, as long as you set up an automatic investment plan.

Similarly, the Schwab Total Stock Market (FUND: SWTIX  ) fund is a great broad-market index fund, with significant holdings in big companies like General Electric (NYSE: GE  ) , Verizon (NYSE: VZ  ) , and Pfizer (NYSE: PFE  ) . Its expense ratio of 0.53% is a bit high for an index fund, but the fund has a minimum of just $100.

Also, note that some funds have lower minimums or waive them entirely, when you invest via a retirement account such as an IRA. So look into that, if you're interested.

Our Motley Fool Champion Funds newsletter can introduce you to many terrific mutual fund recommendations, including some with very low minimums. A free trial includes full access to all past issues, so you can read about each recommendation.

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