A Five-Minute Money Guide for Young Investors
Traditionally, Wall Street firms have rolled out the red carpet for wealthy investors and shown a whole lot less interest in young ones who are just starting out. Small accounts have often been saddled with high fees or barred altogether by high minimums.
But the barriers to younger, poorer investors have been falling. Established firms and startups alike are coming up with cheaper ways to offer advice and investments to people who used to be turned away.
This month, for example, the online investing startup Wealthfront dropped the minimum amount to open an account from $5,000 to $500. It already charges no fee on the first $10,000 it manages.
It's a strategy inspired by other Silicon Valley startups, said Will Trout of research firm Celent: Get lots of customers in the front door with free services and then come up with ways to make money off them down the line. It’s “predicated on the idea that the millennials of today are going to be the high-net-worth investors of tomorrow,” he said.
So how does an ambitious novice investor get started?
We asked a variety of investing firms what they offer to investors who don’t have much money yet. Many say they're happy to take even the tiniest accounts. But you need to be careful about extra fees on small accounts.
You also might not be able to access all the firm's offerings; many funds on offer will have their own minimum-investment requirements. A managed account, in which a firm puts together and manages a portfolio for you, often requires at least $10,000. For the privilege of hiring your own personal financial adviser, you may need hundreds of thousands of dollars or more. Advisers are often paid by a percentage of the assets they manage, and a typical fee is 1 percent per year.
Here are some of the options available at key investment firms.
You’ll need $2,500 to invest in an AllianceBernstein mutual fund. Subsequent investments must be at least $50. Funds purchased through financial advisers have no minimums.
There’s no minimum investment at Betterment, an online investing startup, or “robo-adviser,” founded in 2010. A unique advantage of Betterment for small investors is its ability to sell fractional shares — down to one-millionth of a share — which makes it easier to spread small portfolios over several different exchange-traded funds.
But the service charges smaller accounts more than larger one. It charges a fee of 0.35 percent of assets per year for accounts of less than $10,000, if clients set up an automatic deposit of at least $100 into their account. Otherwise, Betterment charges small accounts $3 per month, which doubles the fee for a $500 account. From $10,000 to $100,000, clients pay 0.25 percent, and over $100,000 they’re charged 0.15 percent.
You need $1,000 to open a brokerage account; that requirement is waived if you set up an automatic transfer of $100 a month or open a checking account. This year, the discount broker started up its own robo-adviser, called Schwab Intelligent Portfolios, which recommends and manages a portfolio at no charge. The minimum initial investment is $5,000.
E*Trade requires $500 to open a self-directed brokerage account, but there’s no minimum to open an individual retirement account, or IRA. If you have at least $25,000, you can sign up for E*Trade’s managed accounts, in which the discount broker manages a portfolio for you.
Clients must have $2,500 to open a retail brokerage account and invest in the markets. For a managed account through Fidelity’s Portfolio Advisory Services, there’s a $50,000 minimum.
Financial Guard is a robo-adviser with a unique business model and pricing structure. It gives clients advice on their investments wherever they’re held and charges them a flat fee of $16 per month, or $150 per year. President Kevin Pohmer argues it doesn’t make sense to charge investors for advice based on how much money they have. It’s like “going to a grocery store and having the checkout person asking me how much I have in my wallet before telling me how much each item costs,” he said. Investors must have at least $1,000 invested to use the service.
You’ll need $500 to open a investment account, either online or through a bank branch. That gets you a basic brokerage account through which you can pick your own mutual funds. To qualify for Chase’s managed account portfolios, you’ll need $50,000.
Merrill Lynch/Bank of America
There’s no minimum to open an investment account through the bank’s discount Merrill Edge platform. As you gather more assets, you can move up to the firm’s other offerings. Once you have $250,000 in assets, it may make sense to transfer to a Merrill Lynch adviser, said Aron Levine, head of Preferred Banking and Merrill Edge at Bank of America. At $3 million or more, you may want advice from U.S. Trust, BofA’s private bank for the very wealthy. You may also want to open the window and scream, "YESSSSSS!"
The minimum for managed account programs at Morgan Stanley starts at $10,000. The firm can handle accounts as small as $500 or less for a traditional brokerage or retirement account. But, unlike some competitors that offer online-only investment platforms, Morgan Stanley requires potential clients pick up the phone. To open an account or to get the details on which minimums apply to various types of accounts, you need to call a local adviser or the firm’s 1-800 number.
Most mutual funds are available for an initial minimum investment of $1,000. An IRA can be opened for $500. There are no additional charges for small accounts.
You need $100,000 to invest with Personal Capital, an online investing start-up that hires advisers to work with clients over the phone. “When it comes to challenging questions and complicated situations, the human touch is irreplaceable,” said Chief Executive Officer Bill Harris. The firm charges a fee of 0.79 percent per year on the first $3 million, with the fee gradually dropping the more money you put in. Over $10 million, it drops to 0.49 percent.
There’s no minimum account size. The firm, which has 6,400 advisers, does charge an annual maintenance fee of up to $50. It can be waived or lowered for certain kinds of accounts, including IRAs and 529 college savings plans.
To open a brokerage account, you'll need $2,500. The firm increased the minimum from $500 in November. Retirement accounts, including IRAs, have no minimums.
There’s no minimum balance to open a brokerage account with TD Ameritrade, which gives access to mutual funds and exchange-traded funds. The discount broker also will recommend a portfolio based on answers to an online questionnaire. This service, called Amerivest, requires a minimum investment of $25,000. The average fee is 0.8 percent per year.
T. Rowe Price
There’s a $2,500 minimum to open a taxable account, and a $20 “low balance fee” on accounts under $10,000. The minimum initial investment for IRAs is $1,000, and subsequent contributions must be at least $100. The low balance fee can be waived on IRAs if clients receive statements electronically.
There’s no minimum to open an investment account, but there is an annual $95 maintenance fee on accounts with less than $75,000.
With a minimum of $1,000, investors can buy one of 12 target-date retirement funds, which automatically spread assets across stocks, bonds, and international investments, and adjust risk as clients get closer to retirement. The fees on Vanguard’s Target Retirement Funds are 0.16 to 0.18 percent per year.
Most other Vanguard funds have higher minimums. For example, the popular Vanguard Total Stock Market Index Fund requires a minimum investment of $3,000. Its regular fee is 0.17 percent per year, but clients with more than $10,000 in the fund can pay just 0.05 percent.
The robo-adviser this month lowered its minimum from $5,000 to $500. It charges no fees on the first $10,000 invested, and 0.25 percent annually on assets over $10,000.
There’s no minimum deposit to open an account through Wells Fargo’s online platform, WellsTrade. The firm does charge a $25 fee on accounts less than $5,000, but that can be waived if you sign up for other Wells Fargo products.
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