Entering market gets easier
Analysts cite slashed minimums by e-brokers, a reopening of closed funds
| NEW YORK
If you've been thinking about getting back into the stock market, now may be the time, given an increased willingness by many financial providers to help get you aboard.
If, for example, you found minimum entry levels to open an online brokerage account too high a few months back, look again. The price- cutting appears to be just getting under way - but could become a real trend.
Many firms are slashing initial-investment requirements by 25 to 50 percent.
At Ameritrade, the minimum to open an account is now $500 - down 75 percent from the $2,000 required a year or so ago. In addition, you can get up to 25 commission-free trades for the first 30 days. At E-Trade, the minimum is $1,000. But if you go online, says a customer service representative, you will find frequent promotions that require less.
"The Internet discount brokers seem to be getting more generous in terms of their promotions," says Kenneth Michal, who tracks the firms for the American Association of Individual Investors (AAII), in Chicago.
Promotions are varied, ranging from lower minimums to higher interest earnings on some cash accounts to free or low-cost trading.
The lower charges and promotions are "definitely tied to what's going on in the stock market," with its recent downturn, Mr. Michal says.
Not all investment firms may be as amenable as Ameritrade or E-trade. Some discount traders, in fact, have raised fees. Case-in-point: Buy & Hold, an Internet trading firm, will hike its monthly trading charge from $9.99 to $14.99 for unlimited trades, effective June 1.
But with a little scouting around, investors will find it is now generally easier than at any time in the past few years to enter the world of stock investing, longtime market-watchers say.
They point out, for example, that many prominent mutual funds, closed to new investors in recent years, are once again throwing their doors open to newcomers, having lost some investors in the recent downturn.
Some 19 distinct funds that were formerly closed to new investors have reopened since the market peaked in March of 2000, according to information firm Morningstar Inc., based in Chicago. Some are well known, including Putnam New Opportunities, Van Wagoner Micro-Cap Growth, and Fidelity's Contrafund and Growth and Income fund.
In addition, even if funds are closed off, "you can usually find a way to get in if the fund is part of your company's retirement plan," says a Morningstar spokesperson.
Many mutual-fund firms are reluctant to lower initial investment charges, because they find smaller accounts to be costly for them over the long term, says Peter DiTeresa, an analyst with Morningstar.
Small accounts are typically discouraged at many firms. Morningstar, for its part, does not track minimums in its computer database. Still, at least one fund group, the Security Capital Group, lowered its share minimums just last week.
The Security Capital US Real Estate Fund dropped its minimum initial investment to $1,000 from $2,500, apparently to gain more investors, according to Mr. DiTeresa. Another fund, the Security Capital European Real Estate Fund, has also lowered its minimum from $2,500 to $1,000. It is currently traded in only six states, however.
Those with only a small amount to invest in mutual funds can turn to Pax World Funds in Portsmouth, N.H. "We require a minimum of $250 to set up a plan. But once you do that, then you can send in as little as $50 a month, or $50 a quarter, or nothing, ever again. It's up to you," says the spokeswoman.
TIAA-CREF will let you in for as little as $25 a month. And many firms, such as T. Rowe Price, will allow you to start up an automatic- installment program with as little as $50 a month.
Other fund minimums remain fairly high, however, according to Morningstar, ranging from $1,000 to $3,000 at most major funds.
Exotic trading funds, such as hedge funds, can be much higher, ranging from $10,000 to $25,000.
Whatever the cost of getting into the market, some analysts say now may be a good time to do so.
There's definitely going to be a "kick" for equities in the second half of this year, says Richard DeKaser, chief economist for National City Corp. in Cleveland.
For 2002, Mr. DeKaser expects modest returns of about 7 percent on the S&P 500, but also promising returns from Treasury bonds and corporate bonds, in the 6 percent to 7 percent range, respectively.
But reenter with care, market experts say. "At the end of the past decade, we forgot about the importance of prudent, long-term investing," says Chuck Kadlec, managing director and chief investment strategist with mutual fund firm J. & W. Seligman & Co. in New York.
Investors, he says, need to get back to basics. That means allocating your holdings in stocks, bonds, and cash; making certain your portfolio is well diversified among different types of stocks (including growth and value stocks, international holdings, and large-cap, mid-cap, and small-cap companies); and then investing on a consistent basis over time - what some analysts call "dollar-cost averaging."
Also, "you need to have a clear idea about your objectives," says Tim Schlindwein, who heads financial consulting firm Schlindwein Associates in Chicago.
Schlindwein reinforces the oft-stated importance of matching your investing strategy to your long-range goals.
The younger you are, he says, the more aggressive you can be with stocks. The closer to retirement you are, the more attentive you need to be to safety of principal. Bonds - often overlooked - can become as important as stocks.
(c) Copyright 2001. The Christian Science Monitor