Investors Can Start Small With Some Stocks, Funds

How does a "small saver" get into the stock and bond markets when so many [financial firms] want thousands of dollars for minimum investments? What if you don't have the money, or don't want to tie up that much cash?

- L.K., Seattle

Financial opportunities for small investors have become increasingly limited over the past five years or so. Minimum investments on mutual funds typically cost $2,000 nowadays. Many fund groups, including industry leaders Fidelity Investments and Vanguard Group, have imposed new charges on accounts below minimum balances.

If that's not discouraging enough, non-mutual-fund investments tend to be fairly expensive. United States Treasury bills require a $10,000 initial minimum investment. Premium corporate bonds available through brokers often exceed $1,000. Buying an individual share of stock might be relatively inexpensive - but if you buy a share, the commission can eat into any profit.

Still, for small investors with limited resources but a lot of gumption, there are alternatives. Here are some avenues some experts suggest exploring:

Mutual-fund options

A number of mutual funds waive the initial minimum investment of $1,000 to $2,000 if you agree to pay a certain amount each month, usually through some type of automatic bank transfer program. Twentieth Century (800-345-2021) is one such company. Twentieth Century has a minimum investment of $2,500 for most of its funds. You can start out with $50, but must then pay in $50 a month until you reach $2,500. Janus Funds (800-525-8983) has a regular $2,500 minimum. But it will let you start with a $500 initial investment if you then pay in $100 a month until you reach $2,500.

T. Rowe Price (800-541-8832) has a minimum of $2,500. But with an automatic investment plan you can pay in $50 a month until you reach $1,000.

One major fund family offers an even lower plan, with no requirement as to subsequent investments: The Franklin-Templeton Group (800-632-2180) has a minimum investment of $100 for many of its funds. Subsequent payments (with your choice as to when, if ever, you make them) can be as little as $25.

Talking to friends and family members often turns up special deals. Example: if you are an employee or agent of the State Farm insurance company (or a family member of an employee or agent), you can buy into several of its mutual fund products with a minimum investment of $50. "We will extend our family membership out to first cousins," a spokeswoman says. The number is (309)-766-2029.

Gold and natural resource funds often carry small minimum requirements. The Midas Fund (800-400-6432) was the No. 1 gold fund for the 12-month period ending March 31, 1996, according to Morningstar Inc., a Chicago research firm. The minimum at Midas: $500. Still, precious metals are not for everyone, experts say. They have a history of turbulence.

Muhlenkamp (800-860-3863), primarily a stock fund, has a $200 minimum.

Finally, rather than dealing directly with a mutual-fund company, you can buy a "load" fund (with high up-front charges) through a broker. A number of load funds have minimums of around $500, although the up-front fees typically eat 5.50 to 5.75 percent of your investment.

Stocks, bonds, and more

Stocks. One inexpensive way to buy individual stocks is to become a member of the National Association of Investors Corp. (NAIC), in Madison Heights, Mich. (1-810-583-6242). The cost of joining is $39. Once a member, a person can can enroll in the NAIC's low-cost stock purchase plan. There is a $7 dollar "set-up" charge, plus you are required to pay the full cost for one full share of any stock you pick. Then, you can invest regularly at a very low cost. The NAIC has a roster of some 150 companies from which you can acquire shares.

You can also buy shares directly from many companies, bypassing brokers entirely. In most cases, you will have to first buy one share through a broker. You have to make certain that the share is registered in your name, rather than the name of a brokerage account. Once you've done that, you contact the company and begin buying individual shares through the company itself.

About 800 firms in the US offer dividend-reinvestment plans, or DRIPs. These companies will let you use your dividends to buy new shares, often at a discount. A recently updated book on this topic is "Buying Stocks Without A Broker" (McGraw Hill, $17.95), by Charles B. Carlson, editor of the newsletter DRIP Investor.

Bonds. Fixed-income specialists agree that for safety, convenience, and consistency, one of the best bond buys around is still offered by the US Treasury - Series EE Savings Bonds. The bonds can be purchased for as little as $25, although they carry a face value of $50. The interest rate is linked to six-month Treasury bills for the first five years, and earned interest is free from state and local taxes.

Certificates of deposit. Shopping around can pay off on a CD, available through most financial institutions such as banks. As with all investments, one can usually buy a CD from any institution anywhere - not just in your home town. You usually just have to send the check and provide your Social Security number or other information required for tax reporting.

Individual Retirement Accounts can be even cheaper. Emigrant Savings Bank in New York has an 18 month IRA-CD paying 5.50 percent. The minimum deposit is $250. Bank CDs are federally insured.