How To Invest In Index Funds Without Much Money?

[Alvin]

It seems like index funds are the way to go for the long-term, low-risk security basket. The problem is, the Vanguard 500 index, which looks really good, has a minimum of $5000 to open an account.

Is there anyway to start investing small amounts into index funds without bursting the bank?

[Henry]

Originally Posted by Alvin

It seems like index funds are the way to go for the long-term, low-risk security basket. The problem is, the Vanguard 500 index, which looks really good, has a minimum of $5000 to open an account.

Is there anyway to start investing small amounts into index funds without bursting the bank?

Here's an article from Brendan that mentions that you can start an IRA for $50 bucks:

Start a retirement account with only $50! at Catch a Gideon

Also, you can also look into various ETFs (Exchange Trade Funds). It's the combination of index investing with the handiness and lower costs of individual stocks.

[Steve]

You really have to be careful about investing small amounts of money because sometimes the fees could drastically cut into your returns. It's a good idea to get investing, but you might want to just wait until you can meet the miniums.

That said, if you still insist, this is a good resource:
More IRA Options For Those Starting Out » Blog Archive » My Money Blog - My Path to Financial Freedom

You can also open an account at Sharebuilder or FolioFN (I prefer FolioFN) and purchase exchange traded funds such as SPY.

[FXTraderWill]

It's easy, just buy a stock that replicates an index.

In the case of the Vanguard 500 Index, which replicates the S&P 500, the security you want to buy is SPY. SPY trades at ~1/10th the value of the S&P Index (right now ~$138/share) and trades just like a normal stock, so it should cost you at most $10 to place your order. Its performance will mimick that of the Vanguard 500 fund - hell, it might even do a little better since the Vanguard fund will take a percentage of your assets as a management fee.

For the Russel 2000 Index, you want IWM.

Go to bigcharts.com and lookup SPY just to see what I mean. Then compare it to SPX (SPX you can't actually buy, it's just the index itself, the closest you can come is with S&P futures, the Vanguard fund, or SPY).

[Alvin]

Hey, thanks for the advice guys. ETFs look like they might answer my needs, but then again according to Fool.com they might not be good for dollar cost averaging, which is what I'm really going for here, isn't it, with low amounts to invest every month?