Facebook Twitter

Minimums can seem daunting

SHARE Minimums can seem daunting

For beginners in mutual funds, scaling the heights of minimum initial investments can be quite daunting. And no-load fund companies aren't helping. Muhlencamp, long a mainstay of low entry levels, recently jacked up its minimum from $200 to $1,500. Yet that's still better than the $3,000 that most Vanguard funds require.

Initial minimums aren't the only costs that are rising; so are fund fees. In particular, 12b-1 fees, which pay for a fund's advertising costs, are becoming more common. And a recent study by Morningstar Mutuals found that over the past 14 years, five of 15 no-load families (those that charge no sales fee) had raised their expense ratios (the percentage of assets paid to cover management and other fund expenses).

For beginning investors, low expenses can be even more significant than low initial minimums.

"In this market, people think that 1 percentage point won't make much difference, but when your investment horizon is 40 years, expenses are the most important factor," says Morningstar analyst Scott Cooley.

With this in mind, Kiplinger's Personal Finance Magazine recently searched for outstanding no-load U.S. stock funds with relatively low minimum investments ($500 or $1,000) and low expenses (expense ratios of 1 percent or less with negligible 12b-1 fees). Among funds with a $1,000 initial minimum, Kiplinger's top performers all had three-year annualized total returns (to July 1, 1999) that beat the 29-percent record of Standard & Poor's 500-stock index.

At Northeast Investors Growth fund ($1,000 minimum; three-year annualized return of 32 percent; 800-225-6704), manager William Oates is among the fund's largest shareholders. So he's especially choosy about which stocks he buys, says Kiplinger's.

"Oates invests primarily in blue chip companies with brand-name recognition and a tradition of quality products."

A $1,000 investment gets you into two other stellar funds, Selected American Shares (30.6 percent; 800-243-1575) and SSgA Growth and Income (32.1 percent; 800-647-7327). Both seek large, growing companies but use different methods to find them. Selected American picks undervalued companies, while SSgA Growth and Income chooses the best companies in sectors that stand to benefit from long-term economic trends.

Among funds with a $500 minimum, Kiplinger's three top picks all invest in a mixture of midsize and larger companies. Babson Growth (24.5 percent; 800-422-2766) looks at the 1,000 largest companies and selects industry leaders growing an average of 20 percent annually. Excelsior Value and Restructuring (26.7 percent; 800-446-1012) capitalizes on companies whose share prices have dropped as a result of restructuring. And Nicholas Fund (21 percent; 800-227-5987) likes companies in essential industries such as banking and consumer products.

"Most funds will waive their minimums and let you start an account with as little as $50," concludes Kiplingers.

(Kiplinger's Personal Finance Magazine, 1729 H Street NW, Washington, D.C. 20006; monthly, $23.95 annually)

This column is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.