Automatic Investment Plans Can Pay Off for Newcomers
If you’re thinking about making your first mutual fund purchase but don’t have a lot of money to get started, an automatic investment plan could be worth considering.
With the major stock indexes at or near record highs, these gradual plans offer newcomers and experienced investors alike one of the biggest advantages of dollar cost averaging: protection from jumping in all at once just as the market peaks.
The plans let investors wade in with $50 a month or less--well under the $1,000-to-$3,000 initial minimums required by most funds--in exchange for committing to regular periodic purchases. Auto-plan investors usually make monthly or quarterly purchases through direct bank account debits.
Many fund companies, including Strong and T. Rowe Price, offer such plans, and a few others, like AIM and Invesco, welcome small investors by keeping their minimums relatively low for everybody.
The Times asked Sheldon Jacobs, editor of the No-Load Fund Investor newsletter based in Irvington-on-Hudson, N.Y., for his picks among no-load (i.e., no sales fee) funds with low minimums for automatic investors.
“None of these picks are extremely large,” Jacobs notes, “so presumably you can stay with them for a while before they lose their flexibility.” Big asset bases can become cumbersome to fund managers, crimping performance.
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Jacobs’ choices:
* Safeco Equity and Growth funds: “The Growth fund is best for more-aggressive investors, with a much higher beta [volatility measure],” he says. “Equity is the more moderate choice.”
* Strong Growth & Income: “This large blend fund has an above-average price-to-earnings ratio and is over-weighted in finance and retail stocks. The expense ratio is below average.”
* Transamerica Premier Balanced and Premier Small Company funds: “These are smaller funds but we just started really noticing them. Virtually every one of their funds is doing extremely well at the moment. The Small Company fund is aggressive growth, which is best suited for young investors with a long time horizon.”
* T. Rowe Price European and Personal Strategy Growth funds: “The Europe fund has done a good job over the years finding quality stocks in the developed countries. Personal Strategy’s neutral position is 80/20 [percentage of stocks to bonds], so it’s a good diversified fund for a person starting out who doesn’t want all equities.”
* USAA First Start Growth: “It’s kind of a clone of SteinRoe Young Investors--long-term capital appreciation with stocks meant to appeal to young people. There are no alcohol, tobacco or gambling stocks--so there’s a socially conscious element too.”
For information on the No-Load Fund Investor, call (800) 252-2042 or visit https://www.sheldonjacobs.com on the Internet. If you have a comment or would like to suggest a topic for Portfolio Strategies, please e-mail josh.friedman@latimes.com.
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Easy Entry Newsletter editor Sheldon Jacobs recommends these no-load funds with low initial investment and monthly minimums for investors using an automatic purchase plan:
Safeco Equity and Safeco Growth funds
* 800 number: 426-6730
* 12-month return: Equity, +21.8%; Growth, --0.8%
* Recent stock holdings: Johnson & Johnson, Abbott Labs, Chase Manhattan (Equity); Conseco, Chancellor Media, Philip Morris (Growth)
* Initial/monthly minimums: None/$100
Strong Growth & Income
* 800 number: 368-1030
* 12-month return: +24.1%
* Recent holdings: General Electric, Microsoft, Coca-Cola
* Minimums: None/$50
Transamerica Premier Balanced and Premier Small Company funds
* 800 number: 892-7587
* 12-month return: Balanced, +24.2%; Small Company, +56.5%
* Recent holdings: Dell Computer, Fred Meyer, Microsoft (Balanced); Amazon.com, ProBusiness Services, Hollywood Entertainment (Small Company)
* Minimums: $50/$50.
T. Rowe Price European and Personal Strategy Growth funds
* 800 number: 638-5660
* 12-month return: European, +17.3%; Personal Strategy Growth, +11.6%
* Recent holdings: Wolters Kluwer, SmithKline Beecham, National Westminster Bank (European); Philip Morris, General Electric, Mobil (Personal Strategy Growth)
* Minimums: $50/$50
USAA First Start Growth
* 800 number: 382-8722
* 12-month return: +31.1%
* Recent holdings: Clear Channel Communications, PepsiCo, Newell
* Minimums: None/$50
Sources: Morningstar, No-Load Fund Investor
