When you're shopping for shoes or kitchen appliances, it's not uncommon to be told by a well-meaning friend that "the best is usually the cheapest." What that means is it's worthwhile paying more to get the best available, because you'll benefit more in the long run. That strategy can be tough to apply to your investments because shares in some of the biggest and most reliable corporations are prohibitively expensive. Fortunately, mutual funds provide a way to invest in these giant companies with relatively little money.
Review the portfolios and past performance of several large-cap mutual funds. A number of free listings are available online, or you can subscribe to a service such as Morningstar.
Select one or more funds that invest in the companies you want to own. Bear in mind that their investment mix will change over time, as companies' fortunes rise and fall. Still, as long as the fund's management and objectives remain consistent, the individual companies won't matter too much.
Contact the fund company for the names of brokerages or dealers in your area, or call local brokerages until you find one that handles the funds you've chosen.
Determine how much you can consistently budget for your investment, and set up a pre-approved monthly payment for that amount. Your monthly payments will buy units in the fund, giving you an ownership stake in a broadly diversified group of large corporations.
- In most cases you'll be required to make a minimum initial investment before the monthly pre-approved payments can begin. This will vary between funds and brokerages, so be prepared to shop around.
- Owning shares in a fund enables you to participate in the success of a large number of top companies. As a single small investor with limited cash flow, it would be otherwise be difficult or impossible to accumulate a similar portfolio.
- Standard, growth-oriented equity funds aren't your only option. Income-oriented funds and bond funds can also be invested in large-cap corporations, if those suit your investment objectives.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.