For all of you who can barely afford a $24 subscription to REASON, here's some advice you can really use—how to start accumulating wealth from scratch, even if you have no savings or are heavily in debt. I call it "no-minimum investing."
First, I'll show you how to invest in money-market funds, aggressive growth stocks, gold and silver, and other exciting investments, starting with just the money in your wallet, whether you have $10 or $100. Then I'll show you an easy, painless way to add to your savings or investments without sacrificing your standard of living.
• Interest on checking accounts. Many people continue to use ordinary checking accounts or low-paying passbook accounts, because they don't have several thousand dollars to open a money-market account. But there's no excuse today. Surprisingly, there are two money-market funds that impose no minimum: The CAM Fund (P.O. Box 1984, Valley Forge, PA 19481; 800/423-2345 or, in Pennsylvania, 800/362-7400), and First Trust of Chicago (110 North Franklin St., Chicago, IL 60606, 800/621-4770 or, in Illinois, 312/781-9490).
The CAM Fund specializes in small investors and small businesses. It has no-minimum checking, so you can use your account like a normal checking account (most money funds require a $500 minimum to write a check).
CAM also sends you a unique monthly statement that works as an automatic bookkeeper. When you write a check, you mark a code that tells the fund's computer how to list the expenditure. Categories include auto expenses, clothing, utilities, taxes, etc. There are also 10 optional codes to which you can assign your own categories.
First Trust of Chicago offers three money funds: tax-free investments (such as municipal bonds), government-only investments (primarily US Treasury bills), and a general fund. The minimum for which a check may be written is $100.
• Aggressive growth stocks. You conservative tortoises will probably want to keep most or all of your savings in a money-market fund, earning a safe 10 percent. When interest rates rise, your yield will increase while your principal is protected (unlike bonds, which fall in value when interest rates rise). But some of you may have the speculative hare in you and will want to try your hand in stocks, precious metals, or real estate.
The best way for the beginner to speculate in the stock market is through "no-load" mutual funds. These are funds that require a low minimum and charge no commissions. One of the most successful no-load funds has absolutely no minimum: Twentieth Century Select Investors (605 W. 47th St., Kansas City, MO 64112; 816/531-5575). This fund invests in small growth companies that are likely to outperform the general stock market. It has been listed frequently on the Forbes honor roll, averaging an annual return of 30.5 percent during 1974–84.
Unfortunately, Twentieth Century does not permit you to invest or withdraw your funds by telephone, only by mail. However, there are hundreds of no-load funds similar to Twentieth Century that permit "telephone switching." (For a list, send $2 to The Directory of No-load Mutual Funds, No-load Mutual Fund Association, Inc., 11 Penn Plaza, New York, NY 10001.) Or you may wish to open an account with the discount brokerage Charles Schwab & Co., which trades no-load funds at very low commissions (check your local listings, or call 800/648-5300).
• Gold and silver. Many free-market advocates are partial to gold and silver as a speculation, but where can you buy a single coin without paying a huge commission? Fortunately, there are some sources. Merrill Lynch, for example, has its Wealthbuilders program in gold and silver bullion, and the minimum purchase is only $100. The commission is a reasonable 6 percent, which decreases if you buy more. (Check your local listings, or call 800/221-2856.)
Auric United Corporation, a small coin dealer associated with the well-known gold fund United Services Gold Shares, offers special rates for small coin investors. You can buy a single gold coin or a roll of silver dimes at low commissions. The firm also offers a coin-of-the-month plan, so you can buy on a regular basis. Auric United can be reached at P.O. Box 29568, San Antonio, TX 78229; 800/531-7171 or 512/696-6209.
• Real estate. Much publicity has surrounded the idea of buying rental properties for "nothing down." But the new investor should be cautious about overloading himself with debt in an illiquid investment. I suggest you start modestly.
The best advice for the small investor comes from John Schaub, who specializes in moderately priced single-family homes. His unique system will show you how to buy one rental house a year with less than 10 percent down and no negative cash flow (that is, the rental income is equal to or higher than the mortgage and interest payments). For an excellent, comprehensive introduction, get John Schaub's cassette tape interview, "Big Money on Little Deals" ($5 to Dominion Tapes, P.O. Box 8175, Tyler, TX 75711).
• Automatic wealth-builder. The secret to building financial independence does not just involve investing wisely. If you only have $100 to invest, and you make 100 percent profits, you still only have $200 to show for your efforts. The key ingredient is to have a consistent savings plan, so that you add to your investment capital on a regular basis.
The most successful entrepreneurs are those who put everything they can into their business or investment. They invest every bit of their surplus capital to get ahead.
The easiest, most painless way to build your investment capital is to have a percentage of your income automatically put aside for you each month. Many mutual funds, including those mentioned above, offer "automatic investment plans." They will arrange with your bank to withdraw a specified amount of money every month from your checking account—money that will be put to work for you automatically and painlessly.
I know this system works, because I have been using it for years. You will be amazed how much money you have saved and invested in a few years. This systematic approach to saving also gives you the freedom to spend, knowing that your financial future is secure.
Mark Skousen is the editor and publisher of Forecasts & Strategies newsletter and the author of 10 books. He and his family are currently living in the Bahamas.