T. Rowe Price Automatic Asset Builder
Sure Vanguard has some great funds with lowest expense ratio that you could find in the mutual fund industry. However, to invest with Vanguard, you would have to have a deeper pocket because most of its funds have a minimum requirement of $3,000, which essentially prevents investors with small amount of money to start investing to do business with them.
If I want to save and invest for my retirement now but have no money to set up an account and can only contribute $50 or $100 a month, what else could be my choices?
I had this problem a couple of years ago when I was trying to find a fund in natural resource category with an emphasis on energy. The Vanguard fund in category Vanguard Energy (VGENX) requires a minimum investment of $2,500. During my research, I also considered Icon Energy Fund (ICENX), but eventually chose T. Rowe Price New Era Fund (PRNEX) because it has an expense ratio of 0.66% as compared to ICENX’s 1.17%. Most importantly, with PRNEX, I didn’t have to make any initial investment.
I invest in PRNEX through T. Rowe Price’s Automatic Asset Builder (AAB), which is basically a systematic purchase plan. With AAB, the initial requirement of $2,500 was waived after I agreed to buy $50 of the fund every month. Since December 2004 when I started investing in PRNEX, the fund has performed quite well, thanks to the rise of oil price. As of today, the average cost of my investment is $2,320 and the market value is $2,932, at return of 26%. At the beginning, I put $100 into the fund every month, but reduced to $50 later last year.
What I like about this automatic investment idea is that it lets me start investing even when I have only a small amount of money. Instead of having to save $3,000 or $2,000 to come up with the initial fund, I can start with as little as $50 a month (and the waiting could be costly over the long term). The best way to invest is to start right away. It’s never too late to start investing. In fact, a $50 monthly contribution could make a huge difference 20 or 30 years later. Assuming a moderate annual return of 8%, the following chart shows what I will have 10, 20, 30, and 40 years later when investing $50 and $100 a month.
That’s right, I will have more than $350,000 40 years later if I invest $100 every month in stocks from now. Considering the historical return of US stocks is actually 10.4% since 1926, the number could be more impressive.
Have you started investing yet?
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