'Mellody's Mail': Mutual Funds on a Budget

Q U E S T I O N:: I am a single parent and I am trying to start to invest in the stock market, but most companies require at least $2,000 to start. Any suggestions about companies that require less?

A N S W E R: You have several options in terms of where and how to purchase stock. You can either purchase stock through a broker or, in some cases, directly from the issuing company. In addition, you can use an online service such as www.sharebuilder.com and www.netstockdirect.com, which offer a convenient and low-fee ways to buy individual stocks.

However, given that you are new to investing, I recommend that you invest in a mutual fund rather than an individual stock in order to reduce your risk. A mutual fund is a collection of stocks, bonds or other securities owned by a group of investors and managed by a professional investment company. Mutual funds offer investors many benefits including diversification, liquidity, professional management and simplicity.

Although investment minimums for mutual funds generally range from $1,000 to $5,000, many fund families waive this minimum if you enroll in an automatic investment plan. With an automatic investment plan, you choose to have a certain amount automatically invested from your bank account or paycheck on a periodic basis (usually monthly). Minimum investments through an automatic investment program can be as low as $50 per month, but vary according to fund.

Fund families also offer investors a break on investment minimums when investing for retirement. For example, if an investment minimum for a regular, taxable mutual fund account is $1,000, the initial investment minimum for an IRA may be as low as $250. If you choose to invest in an IRA, keep in mind that the maximum annual contribution for 2004 is $3,000.

When selecting a mutual fund, be sure to do your research first, keeping your investment goals and age in mind. In addition to investment minimums, consider factors such as performance, manager tenure and fees.