Small investors can still find decent funds

— -- Sometimes it's fun to daydream. What if watchdogs could tell time? What if carpenter ants built itty-bitty gazebos? What if mutual funds allowed small investors to own a slice of a diversified portfolio of securities?

Actually, mutual funds are pooled investments. But the fund industry — particularly funds sold without a commission, or load — has largely forgotten that mutual funds were designed for small investors. Fortunately, a few funds still remember the wee folks.

Want to open an account at Fidelity's largest stock fund, Contrafund? That will set you back $2,500. (To be fair, you can open an individual retirement account at Contrafund for $500.) Vanguard's largest fund, Vanguard Total Stock, wants $3,000, even for an IRA. Dodge & Cox Stock wants $2,500, or $1,000 for an IRA.

The median family income in 2007 was $61,355, according to the Census Bureau. (Median means that half were higher, half lower.) For a typical family, finding $2,500 or more for an initial investment is tough — particularly in times like these.

Funds don't like small accounts because they're expensive to maintain. On the other hand, the fund industry maintains a fairly comfortable profit margin — often more than 20% — and rakes in significant amounts of money on their flagship funds. For a quick, back-of-the-envelope calculation, consider the $39 billion Fidelity Contrafund, which has a fine long-term record.

The fund charges 0.89% of assets for expenses, such as salaries, printing statements and keeping the electric bill paid. On a $39 billion fund, that comes to $347 million. For the larger funds, at least, keeping track of smaller accounts shouldn't be that much of a burden to bear.

Many broker-sold funds will let you start a mutual fund account for much less than no-load funds will. The American Funds Growth Fund of America, for example, will take an initial investment of $250, either for a taxable account or an IRA. You will, however, have to buy the fund through a broker, who will charge you a 5.75% commission. Don't expect a lot of investment advice for $14.38.

Furthermore, if you're strapped for cash, you can't really afford to give 5.75% of your hard-earned money away, no matter how good the fund. Use a no-load fund instead.

Some no-loads are still kind to small investors.

Nearly all funds, including no-loads, offer reduced minimum initial investments for retirement accounts, because those accounts tend to stay in one place for long periods of time. Most Fidelity funds will let you start an IRA for $500. Many T. Rowe Price funds, which carry a minimum initial investment of $2,500, have IRA minimums of $1,000.

A few funds with top 10-year records that will let you open an IRA for $500 or less:

•Parnassus Equity Income prblx, up an average 5.5% a year the past decade. Minimum IRA: $500.

•FPA Crescent fpacx, up an average 7.5% a year the past 10 years. Minimum IRA: $100.

•Yacktman fund yackx, up 6.9% a year the past decade. Minimum IRA: $500.

If you'd prefer to open a taxable mutual fund account, consider using a fund's automatic investment plan (AIP). Essentially, you agree to let the fund tap your bank account at regular intervals — usually monthly — until you reach the fund's normal minimum investment.

Many funds will let you start an AIP with just $50. Most T. Rowe Price funds, for example, will let you start a $50-a-month AIP. One T. Rowe suggestion: Capital Appreciation prwcx, up an average 7% a year the past 10 years.

If you're looking for an international fund, Artisan International artix is a good choice. It's up 3.4% a year for the decade.

Last year around this time, we listed five funds with good records that would let you start an AIP for $50. The chart shows how much money you'd have now if you invested $50 every four weeks (that's 13 periods, for a total of $650).

As you can see, only one fund to date has produced more than $650. But cut them some slack: We've had a savage bear market for most of the past 12 months.

You won't get rich investing $50 a month, even if you do it for 30 years. But you'll get a good start. And if you increase your contributions as your fortunes increase, you'll no longer be a small investor.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays. new book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. Click here for an index of Investing columns. His e-mail is Twitter: