Monday, February 27, 2006

A $500 (or Less) Mutual Fund Screen

Sometimes I don't want to commit a lot of money up front to a particular investment. I'm frequently considering alternatives, sometimes with only a small initial outlay of cash. Below you'll find thirteen mutual funds that past through the filters on a screening tool I used today.

Basically, I checked for no-load funds whose annual expense ratio is at or less than the overall mutual fund market average. Additionally, I wanted to see what funds can be obtained through some of the more common discount brokers. Finally, I went with those funds that demonstrated reasonable performance over the last three years (>8.4% after tax). The following funds qualified:

Aim Basic Value (GTVRX)
American Century Value (TWADX)
Armstrong Associates (ARMSX)
AssetMark International Equity (AFIEX)
Excelsior Energy & Natural Resources (UMESX)
Excelsior Value & Restructuring (UMBIX)
GE Premier Growth Equity (GEPDX)
GE Strategic Investment Y (GESDX)
Homestead Value (HOVLX)
JP Morgan Investor Balanced AL (OGIAX)
JP Morgan Investor Growth A Loa (ONGAX)
PAW World Balanced (PAXWX)
Victory Diversified Stock (GRINX)

Yahoo Ticker Symbol Lookup


While index funds tend to be the best play over the long term, mutual funds represent a low-cost option for small investors. What do I mean by low cost? Well, if you were to buy an exchange traded fund (ETF) with $500, you'd likely spend around $10 on the initial purchase. This would yield an upfront 2% expense ($10/$500) on your investment. I feel that mutual funds represent a good method for investing up till the point you have around two grand or more... Then other alternatives could be easily blended in. I've been invested in the Excelsior Natural Resources Fund for the last year now. Opinions?


Screening Criteria

(Expense Ratio <= 1.5)
(Minimum Initial Purchase <= 500)
(No-Load Funds = Yes)
(Morningstar Rating >= Four Stars)
(3 Yr AfterTax Return (with sale) >= 8.4)
(Closed to New Investment = No)
(Sharpe Ratio (3 Year) >= 1) Definition of Sharpe Ratio
(Brokerage Availability = Ameritrade Inc.)
Or Scottrade
Or Fidelity NTF
Or Vanguard NTF
Or Schwab Retail One Source NTF
Or TDWaterhouse Retail NTF
Or ETRADE No Loan NTF

1 comment:

Nathan Whitehead said...

This is a good point. I didn't know there were funds that you could get into with less than $1000.

My only worry is that you don't have sufficient savings built up for short term expenses. I recommend 6 months living expenses in a high-yield savings account. If all your savings are invested in the market, you can't rely on them for short-term expense needs (when you need to pay for a tow, you visit the dentist and are waiting to be reimbursed by insurance, whatever).