Automatic Investment Plan: The Beginner Small Investors Way In
I made an earth-shattering discovery over the weekend: there is a way for small fledgling investors like myself to get into many mutual funds. Now for those of y’all who have some investing sophistication or no problem putting together the average minimum investment amount this will seem like no big deal. But for a person like myself with only a small amount to work with (right now) this is a huge thing!
I had already discovered and used reduced minimum investment figure to start my Roth IRA over the summer. In fact, I was surprised when my financial guy didn’t know about it until pointed it out. The front-load (yes, I know…no wet noodles) mutual fund has a normal minimum investment figure of $1,000 … but if it is put into an IRA account (Roth or traditional) that minimum is lowered to $250.
I was cruising around morningstar.com over the weekend, trying to learn a few things and scoping out no-load funds. When I clicked for more info, I saw the regular minimum investment figure that is on the snapshot page, then underneath that is the IRA minimum investment figure … and underneath that is something listed as “AIP.” So off to Google I went!
I discovered AIP stands for “Automatic Investment Plan” and found a simple definition for it. Then I read a three year old article about the benefits of AIP on USA Today that still feels true. I particularly loved this opening line:
Wall Street has traditionally greeted small investors with the same enthusiasm as a package of week-old smelt.
Looking at a lot of the minimum investment amounts for regular accounts, I feel that still holds true. So that makes me the Wall Street equivalent of week-old smelt … or a dead skunk on the road. LOL I have no idea what smelt smells like, but it sounds pretty bad.
So just how big of a difference is this in the required minimum investment? For some funds, there is absolutely no difference. For others, the difference is enormous (or gi-normous as my son says). Here’s a screenshot of the exact one that sent me hunting (source):
See why I got so darn excited? Now this is not an endorsement of this particular fund, just the most extreme example of the principle of how this AIP idea can let a small-money investor like myself get into action :)
This will be of particular use when my son gets a job and wants to start up his funds, because the way it can work is even a teenager making minimum wage will have the opportunity to start off in mutual fund investing … while he has all the time in the world to let compound interest work its magic! And if it’s good enough for the kiddo, it’s good enough for us parents!
I am so looking forward to the wealth-building stage (after the debt is completely paid off) and hope to learn even more investing information like this: useful even to those of us who are small investors or beginning investors.
