Ask MAX: Investing $20 a month?

February 24, 2005

Dear MAX,

I’m 21 years old and interested in starting to invest $20 a month, what do you recommend?


Dear Katherine,

Good idea. Most people don’t start investing until they have more money to invest. However, investing smaller amounts of money for a longer time period can be even more beneficial than investing larger amounts later in life.

It sounds impossible, but $20 invested today could be worth $500 when you hit 70 years old – and that’s using a fairly conservative growth rate below the historical stock market return.

Sadly, it can be difficult to invest small amounts of money. While you can always save in a bank account or even in a money market mutual fund, you’ll get a bigger bang for your buck in a lower fee mutual fund that invests in stocks. Mutual funds allow a small investor to invest in dozens of stocks for a reasonable fee.

Most good mutual funds require investors to fork over $2,500 to get started, although there are many good ones that require $1,000. Better for your situation, some waive the minimum if you agree to invest a small amount of money each month.

This sort of plan goes by different names depending on the fund company, but is broadly known as an automatic investing plan (some call it a systematic investment program). Think of the scene in the move Grease where John Travolta was describing the hot rod as “automatic, systematic” … o.k. maybe not.

T. Rowe Price has a number of good funds, but they carry a $2,500 minimum investment. Get on T. Rowe’s so-called “Automatic Asset Builder” and they’ll waive the minimum. You have to agree to let T. Rowe deduct $50 per month from your checking account and direct it into one of their funds.

A good choice is T. Rowe Price Equity Index 500 (PREIX), a low fee index fund. Another option is T. Rowe Price Retirement 2040 (TRRDX). This fund owns other T. Rowe price funds (known as a fund of funds) and will become more conservative (own more bonds and cash, less stock – what is known as a lifecycle fund) as time goes by – just as you should be as you near retirement. Go to or call 800-638-5660 for more information.

Of course, you want to invest just $20 per month - a small problem. Only load funds will take on clients who invest just $20 per month, as they take 5.75% of your monthly investment, and this can make such a small account worth bothering with.

As for no load funds, you may have to step up your savings to $25 per month. There are a few no load funds that allow such small monthly investments.

Exeter Funds (800-466-3863), managed by Manning & Napier, allows auto investing of just $25 per month. Consider Exeter Equity (EXEYX).

Be aware that your bank may charge a fee if you do not have $25 in your account at the time the fund tries to hit your account up for the monthly amount.

Alternatively, you can save your money each month in a regular savings account (or a money market fund), and when you hit $1,000 you can open an account at any number of good mutual funds. Two good $1000 minimum investment options are SSgA Disciplined Equity (SSMTX) 800-647-7327 Meridian Growth (MERDX) 800-446-6662 all fit the bill.

Most funds allow you to make additional investments of as little as $50-100 – and sometimes there is no minimum for subsequent investments - so you can continue to add to this account at your discretion.

You’re on the right track: save early, save often.

Thanks for the question.


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