How to Invest When You’re Young

This is the title of an article from Kiplinger’s Personal Finance. The article suggested several options to start investing with a small amount of money (less than $500). According to the article, youngsters can start stock investment with Sharebuilder, which charges $4 for each transaction. For the long-term, the article brought up a couple of mutual funds with low minimum initial investment, such as

  • AARP Agressive fund (N/A): Minimum $100 to open an account. Minimum requirement waived for automatic monthly investment of at least $25. Fees: 0.50% expense ratio (ER) after expense waivers; 0.71% before waiver; maximum 0.20% 12(b)1 fee.
  • Hodges fund (HDPMX): Minimum $250 to open an account and $50 for subsequent investments. Fees: 1.47% ER, maximum 0.25% 12(b)1 fee.
  • Pax World Balanced fund (PAXWX): Minimum $250 to open an account and $50 for subsequent investments. Fees: 0.96% ER, maximum 0.25% 12(b)1 fee.

Though the mentioned all have very low minimum investment requirement, which make them attractive to young investors who can only put a small amount on a regular basis, I have a different option because these funds are relatively unknown to me (maybe this is a good thing as the fund asset won’t grow to a size that becomes a burden for the fund manager). My choice is T. R. Price. Currently, I have an ESA account for my daughter with TRP, invested in Personal Strategy Balanced (TRPBX). With $50 automatic monthly contribution using automatic asset builder, there is no minimum initial requirement. The fund has an ER of 0.86% with no 12(b)1 fee.

Actually, I think these low-minimum-initial-investment funds not only are good for young investors, but also make sense for those in debt. Though I agree that paying off debt should have the highest priority, how long a person is going to carry the debt? 2 years? 5 years? or 10 years? For a financially responsible person who is determined to eliminate the debt, the time required to be debt-free is likely to be shorter than the time, for example, to reach his/her retirement. In that sense, time is on his/her side in getting ready for retirement. By investing as little as $50 a month, the magic of compounding will turn a small amount into a big pile of money!

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