How Much Money Do You Need to Invest in Mutual Funds?

Mutual funds section
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So you've decided to buy a mutual fund. But how much do you need to get started investing? And what are the minimum investment amounts? In many cases, you'll need thousands of dollars to buy mutual funds. But in other cases, you can get started investing with mutual funds for $100 or less.

The exact amount for the minimum initial purchase will often depend upon the mutual fund company. Learn more about how much you need to invest in mutual funds.

Key Takeaways

  • Many mutual funds have a minimum investment for the first-time buyer. The threshold varies greatly by firm and type of fund.
  • Funds that contain assets with lower expense ratios tend to set higher initial purchase thresholds.
  • ETFs are another way to purchase a diverse range of funds at once without minimums. But they do charge fees for trades.

What Is the Minimum Required for an Initial Purchase?

Here are amounts you'll need to invest when first buying shares of mutual funds from these top no-load fund companies:

  • Vanguard Funds: The minimum is $1,000.
  • Fidelity Funds: There is no minimum.
  • T. Rowe Price Funds: The minimum is $2,500.
  • Charles Schwab Funds: The minimum is $100.

Remember: The above minimums are for the first purchase on most funds offered by those companies when you are buying in an individual account. Subsequent purchases can be as low as $100 or less. Also, some fund companies accept lower minimums if investing in an IRA or 401(k). This may also be true when you set up a systematic investment plan.

That means that your first purchase may be the most costly. After you make that first purchase, you won't have to come up with hundreds or thousands more before buying more shares of the same fund.

Tip

If you want to gain access to several mutual funds with one purchase, you might want to look into a "fund of funds." This is a mutual fund that invests in other funds.

Investing in a mutual fund that pulls in many other fund sources can provide diversification; this males for a more productive portfolio. That can keep you building more money to meet minimums on great funds from firms like Vanguard and Fidelity.

Mutual fund companies also have some share classes that charge higher initial purchases. For instance, Vanguard's Admiral Shares are usually $3,000 for the initial purchase. These shares often have lower expense ratios. This can give a slight performance edge over long holding periods.

How Can You Invest in ETFs as an Alternative to Mutual Funds? 

The best alternative to mutual funds is exchange-traded funds, also known as ETFs. Mutual funds and ETFs are similar. That's because both enable investors to get exposure to dozens or hundreds of securities. All you have to do is purchase one fund.

Note

The main difference between mutual funds and EFTs is that ETFs trade intra-day like stocks. On the other hand, mutual funds only trade at the end of the day.

With regard to fees, ETFs don't have minimums. But like stocks, ETFs often have commissions or transaction fees each time you make a purchase. Some investors may be able to trade some ETFs with no commissions or transaction fees.

For instance, Vanguard allows their account holders to buy Vanguard ETFs at no commission or transaction fee.

Think Long Term When Investing

Before purchasing mutual funds or ETFs, remember that they are most appropriate for investment periods of at least three years, but a time horizon of more than 10 is best in most cases. Low-cost, diversified mutual funds and ETFs are generally wise choices for almost any investor. When in doubt, speak with a financial advisor who can offer more insight based on your individual financial situation and goals.