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Funds for Small and New Investors

Last update on: Jun 18 2020

Not everyone is ready to build a diversified portfolio. Some investors don’t have enough money to meet the minimum investment requirements at multiple funds. Other investors are slowly dipping their toes into the markets after letting their money compound in money market funds and CDs for years. Still others are starting portfolios for their children or grandchildren and are starting small.

What can these small and new investors do? Brokers and mutual funds are raising their minimum investments, putting up “Small Investors Not Wanted” signs. An investor with less than $3,000 (more at many funds) has difficulty finding even one fund to purchase. There are quality funds available. The right choice for you depends on your goals. Here are the funds to consider.

If you are new to investing or want a diversified portfolio to reduce risk, take a look at Dodge & Cox Balanced. It has been my favorite balanced fund for a long time. The fund sticks close to a mix of 60% stocks and 40% bonds. The managers of Dodge & Cox Stock fund pick the stocks. You know that fund is one of my top recommendations. It has been the biggest part of the Sector and Balanced Managed Portfolios for almost two years and was a profitable bear market investment for us.

The fund has a minimum investment of $2,500 and expenses of only 0.53%. Dodge & Cox Balanced dramatically outperforms the average balanced fund and over the last 10 years trails the S&P 500 index by just a fraction – with significantly less risk.

If $2,500 is too much of a commitment for you right now, consider Oakmark Equity & Income. The fund has been around only since July of 2000, but the proven firm that runs the Oakmark Fund and Oakmark Select also runs it. About half the portfolio is in stocks and the other half is in bonds or cash. The stock portion contains value stocks in the Oakmark tradition, and the bonds are purchased with a value strategy.  The fund returns over 17% in 2001. Minimum investment is $1,000.

You also can use just one fund to get started in the stock market.

If you want to buy value stocks, you can choose funds from the same two fund families we just discussed – Dodge & Cox Stock or the Oakmark fund. The minimums are the same as for their balanced funds. Performance long-term is well ahead of the competition and the indexes.

When a $1,000 minimum investment is too much, consider Excelsior Value & Restructuring a long-term member of my “Other Funds To Consider Now” list on page 11. Minimum investment here is only $500. The fund did not do as well as other value fund in 2000 and 2001, but it has beaten Dodge & Cox Stock over 10 years.

If you want growth stocks, keep in mind that any fund you’ll consider lost a lot of money over the last two years and will depend on a strong economic recovery to be profitable.

The best growth stock fund is TCW Galileo Select Equity, managed by Glen Bickerstaff. I recommended Transamerica Premier Equity when Bickerstaff managed it. I moved my recommendation to TCW when Bickerstaff moved. This fund invests in a relatively small number of companies that Bickerstaff consider the best available and has low turnover. It will have outstanding returns in a bull market but can take a big hit in bear markets.



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