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A $50 Index Investment

Many investors who are willing to put some time and energy in investing cannot do it due to the lack of the financial resources. There is good news for all of you, young or beginner investors, who lack the cash but own the intelligence and entrepreneur spirit.

Five companies have foresaw this niche and started to offer the opportunity of participating in an index fund without the investment of a substantial initial sum of money. These companies are American Century, T. Rowe Price, Strong, TIAA-CREF and Transamerica. They include investment in such funds as S&P 500 index funds, a Dow 30 fund and a Russell 3000 fund.

The main thing you should do is to allocate a specific amount of money every month. This sum is usually set at $50 and represents a profitable way of getting started on the financial markets. What is more, TIAA-CREF has set the monthly amount at $25 and in 2003 the company had waived part of its management fee.

The S&P 500 index funds include stocks of the top ten holdings where IBM, Microsoft and Exxon-Mobil represent a big portion of the investment portfolios. When you compare the performance records and the percentage of fund assets in certain stocks, you should take into consideration the date when the funds were established since most of them are relatively newly set.

According to Charles Carlson, the co-manager of the Strong Dow Value 30 fund, the potential investors, when analyzing performance records, should consider the fees that are charged by the company. Another extremely important factor is the managers' performance since a lot depends on the expertise of the manager and the implementation of his financial skills.

In order to exemplify the importance of the role of the manager, Carlson states the case of S&P 500 funds. Moreover, he claims that since most investors lack the big financial resources, the amount of the fee charged by the company plays a substantial role in decision making. As a result in these variations in the fee levels, different index funds offer different returns on the investment. Your decision on which index fund to invest in should also depend on your investment portfolio.

Indexing on a Shoestring: Successful?

According to Carlson, by as little as fifty bucks per month you can get in return a substantial return over the long run. Carlson explains that if an investor realizes this potential early enough, he can accumulate a reasonable amount for his retirement years. For example, if you start investing $50 monthly at the age of 21, at the age of 64 will end up with $319 000 if the return is 10% per year. On the other hand, if you start later, you will have to allocate a bigger amount to accumulate this sum.

According to Carlson, the whole beauty of this type of index funding is hidden in its infectious character. Once you have felt the positive effect of investing these fifty bucks, you start to allocate more and more, in order to get a greater advantage of this financial opportunity.

Index funds represent a beginner friendly way to embark on investment. Additionally, they are low cost with small tax implications. There are many real life examples in which index funds have outperformed actively managed funds, so it is up to you, young and small investors, to grab this opportunity and make a good use of your $50 dollars, which otherwise you will spend on something useless.

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