Is there a specific amount of money you must have in your account to open a mutual fund?
I am 21 years old and I have a lot of college debt. I want to learn more about how investing works. What is a good website for investing? How do mutual funds work and where do you open one? Is there a specific amount of money you must have in your account to begin the process?
That depends entirely on the fund. Some do, but many do not as long as you establish a monthly contribution schedule of some sort.
What’s far more important, in my opinion, is to make sure you are not overpaying for those funds.
Very carefully examine not only the up-front sales charges of these funds, But also their annual management and marketing fees. You do not have to pay them.
As a young person just getting started, overpaying for investments for your entire working life can literally sap hundreds of thousands of dollars away from your investment performance.
Also, just getting started, there is no need for you to find an actively managed fund to begin with. No research has proven that active fund managers can outperform the markets or their benchmarks for extended periods of time. So don’t pay their extra management fees.
Find a good, low-cost, quality index fund at a discount brokerage and begin there. Don’t try to get fancy and don’t try to be counterintuitive. Just get in. Time in the market is ultimately what matters.
And may may I add, I’m very proud of you for getting started so young!
All my best.
Good for you for starting early to think about your financial future. That is great. I’m sorry that you are dealing with college loan debt, but hopefully you will be able to get a good-paying job and pay it off quickly and put that behind you.
My favorite “safe” website that doesn’t try to sell you anything and is a good place to learn about investing is www.investor.gov. Other good, safe sites are
You can also buy books on investing or go to the library, but it can be confusing to make sure you select authors giving sound investing and financial advice. Also, if you are still in college, you could check out what financial literacy and investing information they might offer for free or even take a class. If you go to the Business department, you could probably find a professor or two who would talk your ear off about investing!
Finally, different brokerage houses have different minimums. If you want to manage your own money and trade stocks or exchange traded funds (ETFs) on your own, you can open an account at an online self-directed brokerage like Etrade, Scottrade, Tradestation, Ally, etc.; or a mutual fund account at a place like Vanguard; and manage your own investments. Check each out to see what their minimum it.
Best wishes to you!! You are going to do so well in life. Please write back to us with more questions!
Congratulations for wanting to get a head start on your financial future.
Mutual funds (open-end or closed-end) provide a vehicle for investors to pool their money and have professionals manage the pruchase and sale of various securities. There are as many types of funds as there are ways to invest.
To keep this simple, I suggest focusing on establishing a core position in something that offers a globally diversified mix of US and international stocks and bonds.
You should focus on costs. So, I recommend avoiding funds that charge front- or back-end loads (commissions). There are plenty of different actively-managed and passively-managed (index) funds out there. Good fund families to check include Vanguard and T Rowe Price.
You can also use tools from Morningstar.com to screen the universe of mutual funds for those that have low or no minimum investments. Many fund families offer funds that have a $50 minimum. Some may require that you set up a regular automatic deposit process to access the low minimum funds.
If you want to gain instant access to globally diversified portfolios at a very low cost, I recommend using a "robo advisor" platform like Betterment or WealthFront. Each of these platforms will manage a model tied to your risk profile and goals that is comprised of low-cost Exchange Traded Funds (ETFs). To find out more about ETFs, you ca find some very good articles on Investopedia. The average cost is between 0.20% and 0.40% per year for their automated services which include selection, trading, and rebalancing portfolios. While there is customer service, you won't get a human advisor to provide you with planning or taxes. You may not need that now but just so you understand the difference in service options.
If you are just starting out with investing, but don't have a lot of money, I'd recommend starting with a robo-advisor like Betterment or Wealthsimple. These platforms automate investing for you. They use algorithms to choose appropriate investments that are based on your risk tolerance and time horizon and they have no account minimums. You'll get a fully diversified portfolio and you don't need to worry about rebalancing or making any changes when needed. These platforms only charge a small percentage of the assets you manage (Betterment is 0.25%/yr, Wealthsimple 0.50%/yr). This is cheaper than using a traditional advisor. If you don't want to go this route, though, I'd recommend looking at a company like Vanguard. They don't have account fees, but rather they make their money from you using their mutual funds and ETF's. They have some of the lowest cost funds on the market and they've been around since 1975.
To answer your question on mutual funds. Mutual funds typically have $500-$1000 investment minimums. They are what are called open-end funds, meaning rather than issuing a finite amount of shares that then trade on the open market, they continually issue and redeem shares. As a result, their value, called Net Asset Value (NAV) is calculated differently than stocks or ETF's. This calculation is done by dividing the total value of the holdings in the portfolio by the total number of outstanding shares. Mutual funds offer diversified portfolios at a relatively low cost, but they are actively managed, meaning a team of portfolio managers actively trade within the fund with the goal of providing better returns than just buying the market. This also means, however, that they have higher internal fees than ETF's or index funds, which are passively managed (no portfolio manager(s)). Mutual funds can have a variety of different focuses, such as strictly on U.S. Treasury bonds, or just S&P 500 companies. Therefore, many people will hold a variety of mutual funds in their portfolios that focus on different asset classes. Managing these types of mutual fund portfolios is generally not a good route for someone just starting out. If you are wanting to hold a mutual fund as a beginner investor, however, I'd recommend using a target date fund like this one. This is what we often call a "fund of funds." Meaning, it holds a diversified portfolio of other Vanguard mutual funds, with each fund focusing on a different asset class. It also requires no management on your part, rather it automatically allocates to more conservative holdings (i.e. bonds) as you near the target retirement date (2055 in this case).
Opening an account is super easy. Just go to one of the websites and click open an account. It will walk you through the process step-by-step. Hope this helps!
Alot of companies require a minimum of $3,000 to open an account. This site - Investopedia - has some great articles. I would start with a savings account, then move your money to Vanguard. They have some great low-cost index mutual funds. The index funds will invest across the market for you.
Good Luck and great you are thinking of investing!
Kimberly J. Howard, CFP