NEW YORK--Small investors find it hard to get started in mutual funds. It typically costs $1,000 to $3,000 to open an
account and you may not have that much cash to spare. Once you're under way, additional investments can run as low as $50 or $100. But that initial hurdle is high.
Unfortunately, the number of funds that welcome super-small accounts has been shrinking fast. But a few remain. Here are two ways to begin on a mini-amount of cash:
1. Start an automatic investment plan. A few funds accept as little as $50 a month, if that money is transferred automatically from your checking or savings account into a mutual-fund account. Three fund groups to call: Janus (800-525-3713) and INVESCO (800-525-8085), both in Denver, and the Nicholas funds in Milwaukee (414-272-6133). All are no-loads, which means that they charge no upfront sales commission.
2. A few funds let you open a regular account for as little as $250 or $500. Subsequent contributions can be smaller. You don't even have to open an automatic investment account (although, for forced savings, automatic investing is hard to beat).
I've winnowed down this list to no-load funds with reasonable money-management expenses. To buy, call the 800 number and ask for the sales literature and a prospectus. If you have any questions, the telephone reps can help.
* Sentry Fund: invested in growth companies. Minimum investment, $500. Annual expenses: 0.86 percent. Call 800-533-7827.
* Strong Asset Allocation Fund: spread over stocks, bonds and cash; and Strong Total Return Fund: invested in dividend-paying stocks. Minimum investment, $250. Annual expenses: 1.2 percent for Asset Allocation, 1.17 percent for Total Return. Call .. 800-368-1030.
* Pax World Fund: in stocks and bonds, but avoids defense, tobacco, liquor and gambling stocks. Minimum investment, $250. Annual expenses: 0.98 percent. Call 800-767-1729.
* The eight stock and bond funds offered by the American Association of Retired Persons and managed by Scudder Stevens & Clark. Minimum investment, $500. Annual expenses range from 0.66 percent to 1.11 percent. Call 800-322-2282.
* Babson Growth Fund: in blue chip companies; and Babson Bond Trust. Minimum investment, $500. Growth Fund annual expenses: 0.86 percent. Bond Fund annual expenses: 0.97 percent for long-term bonds and 0.67 percent for short-term bonds. Call 800-422-2766.
* Century Shares Trust: in growth companies. Minimum investment, $500. Annual expenses: 1.01 percent. Call 800-321-1928.
* Nicholas Fund: in middle- and larger-size companies; and Nicholas Income: in corporate bonds. Minimum investment, $500. Nicholas Fund annual expenses: 0.77 percent. Income fund annual expenses: 0.59 percent. Call 414-272-6133.
These fund accounts are all suitable for money you won't touch for three or four years but will need prior to retirement. If you plan not to touch the money until retirement, however, it's much easier to invest small amounts.
If you're eligible for an Individual Retirement Account, most mutual funds will let you start with just $250 or $500. This money is tax-deductible up to $2,000 a year. So by opening the account, you reduce your current tax. Your gains are also tax-deferred as long as they stay in the account.
IRAs are open to two classes of workers: employees who aren't covered by a company retirement plan (their spouses can't be covered, either); and employees covered by a plan but whose earnings are modest. (For the full IRA deduction, singles can't exceed $25,000 in income and couples, no more than $40,000. Above those amounts, the IRA deduction gradually phases out.)
If you join a 401(k) plan at work, your employer will deduct a small sum from every paycheck. Like IRAs, these plans are tax-deductible and tax-deferred. Typically, you can direct your investment into one or more mutual funds. Often, you get a sweet bonus for joining. Your company may contribute 50 cents or a dollar for every dollar you put up.
Employees with modest incomes often don't enroll in 401(k)s because they think they can't afford it. But you can afford it, if you start small. Begin with $50 a month, then step up your automatic contribution to $75, then to $100.
Both IRAs and 401(k)s, however, are strictly for retirement money. You pay taxes and penalties on funds withdrawn before age 59 1/2 . If you'll need your money sooner than that, go for a regular, taxable account.
You can write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.