The entry fee for many mutual funds is often upward of $2,500 -- an amount a lot of folks might consider too steep a price to commit to a single investment.
Whatever your reason, if you seek a good investment for $500 or less, consider buying into one or more of these no-load mutual funds. Collectively, the six funds, organized by the amount required for a minimum initial investment, don't necessarily constitute a balanced portfolio. However, these diverse offerings can help fill holes in existing portfolios or serve as building blocks for new portfolios. (All returns and related data are as of March 21.)
$100 funds
A low-cost index mutual fund, which is designed to mirror the performance of a broad market segment, can give you a solid investing foundation that's diversified and simple to understand. With just $100, you can reap the benefits of index-fund investing and make an initial investment in Schwab Total Stock Market Index (SWTSX -2.16%, news). It tracks the Dow Jones U.S. Total Stock Market index, which is made up of about 3,600 stocks. While the fund's current portfolio is primarily invested in large-company stocks, it also dips into medium- and small-caps, giving you a good sampling of the entire domestic market.
Schwab Total Stock Market Index has done well over the past year, gaining 24.2 percent and outpacing the 23.3 percent return of the widely followed Standard and Poor's 500 ($INX -0.95%). Over the past decade, it has returned an average of 8.2 percent a year, ahead of the S&P 500's 7.5 percent annualized return and better than 85 percent of the funds in the "large blend" category. (Large blend funds invest in stocks with both growth and value attributes, and are fairly representative of the overall stock market.) The fund's annual expenses are a very low 0.09 percent.
Schwab also offers a set of target-date funds with low minimum investment requirements. Another easy core option for your portfolio, a target-date fund asks you to simply pick the year you want to reach your investing goal (typically, retirement), and the corresponding fund's managers take care of the rest. They select the appropriate mix of investments based on your time horizon and adjust the portfolio as your selected year nears.
For example, a 24-year-old aiming to retire at age 65 would opt for Schwab Target 2055 (SWORX -2.04%, news), which opened in January 2013. The fund requires an initial investment of just $100; annual expenses are 0.73 percent.
Being so young, the fund has little past performance to recommend (or disparage) it, but its older siblings -- guided by the same manager, Zifan Tang -- indicate a promising future. Over the past three years, Schwab Target 2025(SWHRX -1.43%, news) has gained 10.2 percent annualized, beating its category by an average of 1.8 percentage points a year and ranking it in the top 8 percent of all 2021-25 target-date funds. Since Tang took the reins in 2012, the fund has gained a total of 26.5 percent, topping its category by 4.9 percentage points.
One note on fund performance figures: Stocks have been on a tear since the last bear market ended in March 2009, resulting in outsized gains during the past five years. Over the long term, the average annual return of the stock market is closer to 10 percent.
$250 funds
If you want to raise your portfolio's moral standard, consider this pair of so-called socially responsible funds, which invest according to clearly established principles. Amana Growth Investor (AMAGX -2.34%, news) and Amana Income Investor (AMANX -1.71%, news) are run in adherence to Islamic law, meaning they do not invest in businesses involving alcohol, gambling, tobacco or pornography. They also avoid businesses that charge interest, such as banks, and investments that pay interest, such as bonds. Both funds invest primarily in large companies, but the Growth fund focuses on fast-growing firms, while the Income fund seeks undervalued stocks that pay dividends.
The strategies, including the ethical code, have hindered the funds recently. "This bull market of the past five years hasn't been very favorable," says Morningstar analyst David Kathman. "With interest rates so low and money so cheap, it's given a boost to companies that aren't necessarily pristine, and those are not the types of companies that these funds own."
