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mutual fund minimum investment

Whether you’re new to investing or have been doing it for years, mutual funds offer a great way to invest your money. It allows you to invest in multiple stocks and bonds without the hassle of choosing and buying each individually. Plus, mutual fund companies can do all this work for you. While convenient, mutual funds aren’t always accessible to all investors due to their potentially high minimums.

What Is a Mutual Fund?

When you invest in a mutual fund, you put a fund company in charge of buying your shares and bonds. This serves as an alternative to buying various individual stocks on your own. You might already be familiar with mutual funds, through your employer-sponsored 401(k). In that case, your employer’s chosen fund company manages your and your coworkers’ 401(k) investments. That way, you don’t have to do all the calculations yourself to try and optimize your earnings.

Mutual funds do require you to choose the fund you want. Mutual funds include stocks, bonds, money market and index funds. Each mutual fund will hold a different mix of these investment subsets, with some containing only stocks, for example, while other balanced funds offer a more diversified mix.

When choosing your mutual fund, it helps to take into account your risk tolerance for investing and your savings goals timeline. For example, let’s say you’re in your 20s and have just started your 401(k) mutual fund. You have a long way to go until retirement, so you can afford to be more aggressive with your investments. If you experience some losses, you have plenty of time to make it up. But of course, if you’re not the aggressive type, you can always choose a safer investment approach.

Average Minimum Investment for Different Mutual Funds

The downside to mutual funds is that they can carry some high minimum investment requirements, especially for a beginner investor. On average, you can be expected to front a minimum of $2,500 to open a mutual fund. However there are funds that require amounts as little as $500. Because of this large difference in minimum investment amounts, it helps to shop around before selecting a mutual fund. Typically, lower minimums will work better for younger investors who don’t yet have thousands of dollars to spare. More experienced investors may still want to take advantage of the low minimums to better spread out their investments through multiple funds.

Imposing minimums allows the mutual fund to keep the cash flowing and daily management running. You can sometimes find a mutual fund that offers more investment perks with a higher minimum, although the higher minimum itself isn’t required for all investors. You may also see lower minimums for different types of accounts like IRAs. 401(k) mutual funds do not require a minimum.

Mutual Fund Company Minimum
Vanguard $3,000
Fidelity Investments $2,500
Charles Schwab $0
TD Ameritrade $0

Should You Invest the Minimum?

mutual fund minimum investment

A good thing about mutual fund minimums is that the exact amount varies and depends on the fund manager. This means that not every manager will require a high amount. Again, this is when it comes in handy to shop around for investment managers and mutual funds before making your pick. That way, you won’t end up forced to meet a high minimum when you don’t actually have the funds to spare.

If you are able to meet a mutual fund’s minimum and you like the mix of funds you’ll get, then you should invest at least the minimum. Investing more money means you have more assets to allocate and more room for growth. The minimum is certainly a good place to start. If anything, whether you’re a beginner or seasoned investor, you can add more money to the fund as you go along.

What Are Alternatives to Mutual Funds?

No need to worry if you wanted to get started with mutual fund investing, but can’t meet the minimums. You have other options. One such option is working through an online brokerage. These allow you to make your own stock and ETF trades, which cost about $5 each. Plus, you won’t have to worry about meeting sky-high minimums.

You can also choose to open an account with a robo-advisor. Operating entirely online instead of with an in-person financial advisor, a robo-advisor allows you to set your investment goals and preferences and then forget about it. Plus, most robo-advisors carry low minimums, if there is a minimum at all. For example, neither Betterment nor Wealthsimple require a minimum investment, while Hedgeable requires a mere $1. Keep in mind, though, that not all robo-advisors are so lenient with their minimums. For one, Vanguard’s robo-advisor arm, Vanguard Personal Advisor Services, requires a $50,000 minimum investment. Other robo-advisors impose a more average investment minimum.

There are also newer investment alternatives like Acorns, Stash and Motif. As a robo-advisor, Acorns has no minimum requirement and enables you to invest your spare change. Stash does require a $5 minimum, but it gives you the freedom to invest in causes you care about. Finally, Motif works as both a broker and robo-advisor, offering single stocks for $5 per month and 30-stock bundles (or motifs) for $10 per month. Motif does have a minimum requirement, although at $300, it falls well below the average mutual fund minimum.

The Takeaway

mutual fund minimum investment

Mutual funds are a great way for almost anyone to get started with investing. The main hurdle though is the minimums that come with mutual funds. While they do start at $500, minimums do tend to run pretty high. This can put many investors off of mutual funds. Luckily, there are a number of alternatives to mutual funds. Plus, you can still find low-minimum funds to start your investing journey.

If you’re overwhelmed by the options or have some questions you need answered, remember you can always turn to a professional for help. A financial advisor can help you figure out how to most effectively invest your money. SmartAsset’s financial advisor matching tool can help you find an advisor to work with who will meet your needs. After you answer a series of questions about your financial situation and goals, the tool will pair you with up to three advisors in your area who suit your needs.s

Tips for Investing on a Budget

  • It’s a common misconception that you have to have tons of money to start investing. However, that couldn’t be further from the truth. Especially with Acorns, Stash and more, investing smaller amounts of money has become more accessible. Plus, these kind of investment services can manage your investments for you at a much lower fee structure than traditional investment advisors.
  • If you’re comparing investing in ETFs vs. mutual funds, each has its pros and cons. For example, mutual funds require you to pay a management company while you can more passively manage your own ETFs. On the other hand, the fees of each ETF you buy can easily add up.

Photo credit: ©iStock.com/Drazen_, ©iStock.com/mapodile, ©iStock.com/honglouwawa

Lauren Perez, CEPF® Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society of American Business Editors and Writers. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
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