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Buy two great funds with low minimums
Put a little extra cash to work in a couple of funds with low fees and low minimums. Homestead Small Company Stock (HSCSX), a member of the Kiplinger 25, requires only $500 and charges just 1.06% a year in expenses. The fund’s 17.9% three-year annualized return (through November 30) outpaced the Russell 2000 index by an average of four percentage points per year. Nicholas Equity Income (NSEIX), which has a $500 minimum and a 0.79% expense ratio, invests in dividend-paying firms
of all sizes, with a goal of delivering a higher yield than Standard & Poor’s 500-stock index. The fund’s recent yield of 2.9% is indeed higher than the S&P’s 2.3% yield, and over the past five years the fund returned 6.8% annualized, compared with 1.3% for the S&P 500.
Take a flier on low-priced stocks
All three of these stocks sell for less than $10 a share, meaning you can buy 100 shares of one company, or a mix of two or three, for less than a grand. Prices are as of November 30.
To make tiny semiconductors you need a super-clean manufacturing environment because a single speck of dust can destroy a chip. Entegris (symbol ENTG) offers contamination-control, shipping and storage services. Softness in the semiconductor business made for a rough 2012, but analysts expect earnings to resume rising in 2013. At $8.96, the stock sells for 15 times estimated 2013 earnings.
Erickson Air-Crane (EAC) builds helicopters used for firefighting and heavy-construction projects that are capable of lifting up to 20,000 pounds per load. At $7.62, EAC sells for just 5 times estimated 2013 earnings. D.A. Davidson & Co. analyst J.B. Groh thinks the stock will hit $10 within a year.
Verastem (VSTM), like many early-stage biotech companies, is not profitable. But UBS analyst Matthew Roden thinks the company has a formula likely to prove crucial in the fight against many types of cancer. The treatment, which targets stem cells that spread cancer, is still untested and could take more than a year to develop, but Roden thinks the stock, now $6.81, could reach $20 within two years.
Build an ETF portfolio
With exchange-traded funds, you can put together a well-rounded portfolio for less than $1,000. Start with 16 shares of Vanguard Total World Stock (VT, $48), which tracks an index of nearly all the globe’s publicly traded companies, then add two shares of Pimco Total Return (BOND, $110), an actively managed ETF that invests primarily in high-quality U.S. bonds. Not only will you hold positions in almost 4,000 stocks—including stakes in emerging-markets and small-company stocks—but you’ll also benefit from the investment ideas of Bill Gross, one of the world’s most renowned bond managers. This mix will give you a 78% allocation to stocks and a 22% allocation to bonds, appropriate for a long-term investor in his or her thirties or forties.
Open a Roth IRA
If you invest $1,000 in a fund that earns an 8% annual return and continue to invest $100 a month, in 30 years you’ll have nearly $160,000. Withdrawals are off-limits to the IRS after you turn 59½. TD Ameritrade requires no minimum investment for a Roth IRA, and many funds have low minimums for Roths.
For 2013, you may contribute to a Roth if your income is less than $127,000 if you’re single ($188,000 for couples who file jointly). If you earn more than that, you could convert a traditional IRA to a Roth. You must pay taxes on any pretax contributions and earnings.
Give a kid a jump-start on retirement
As long as your child has earned income of at least $1,000, you can give him or her that amount to invest in a Roth IRA. Target-date retirement funds are good choices for a young adult’s Roth. The funds’ mix of stocks and bonds gradually becomes more conservative as the investor nears retirement. Vanguard’s target-date funds have some of the best returns and lowest expenses in the category.