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Opportunities Expanded With Lower Minimums for Funds in Schwab OneSource®


Key Points

  • Schwab recently lowered the minimums for initial and subsequent investments for most funds participating in its Mutual Fund OneSource service, making it even easier for individual investors to get started.
  • The reduced minimums also open the door to Schwab’s Automatic Investment Program (AIP) to more investors, allowing them to automate their investing and take advantage of the strategy of dollar-cost averaging.
  • AIP brings discipline and consistency to an investment program and can help investors overcome inertia and resist the temptation of market-timing.

Many investors consider the most difficult aspect of wealth-building to be getting started—determining how to allocate their assets, choosing appropriate investment vehicles, and taking the action required to create an initial portfolio. There can be many reasons for inaction or procrastination, but many would-be investors simply believe that they haven't amassed sufficient resources to get started. To help overcome this barrier, Schwab has lowered its investment minimums for both initial and subsequent mutual fund purchases for the majority of funds participating in its Mutual Fund OneSource service.

Opening the Door to More Investors

A pioneer in the fund supermarket model, Schwab developed Mutual Fund OneSource to provide investors access to a large number of funds and fund families through a single account, with no loads or transaction fees. Always looking to further increase the attractiveness of the platform and to enable more investors to take advantage of it, Schwab recently lowered its initial investment minimums on Mutual Fund OneSource funds from $2,500 to as little as $100 for most funds. And once an initial position has been established, subsequent, ongoing investments in that fund can now be made for as little as $1, down from $500. The changes apply to most funds participating in Schwab's Mutual Fund OneSource service—including the vast majority of funds listed in the Mutual Fund OneSource Select List. As with all Mutual Fund OneSource funds, initial and subsequent mutual fund investments incur no transaction fees1.

Benefits of Lower Minimums

Lower minimum investments are meaningful for more than just small or first-time investors. Among the benefits:

  • By committing a smaller amount, investors can reduce or alleviate concerns about getting into the market at the wrong time, especially during volatile markets.
  • Lower minimums can make it easier for investors to branch out beyond a single-fund portfolio solution, increasing their diversification across multiple funds and asset classes.
  • Lower minimums allow investors exposure to areas of the market that may previously have been inaccessible to them.
  • Lower minimums allow more investors to immediately participate in Schwab's Automatic Investment Program (AIP), which provides an easy way to employ a dollar-cost averaging strategy.

Beyond Getting Started: The Importance of Ongoing Investing

While getting started is key, over the long term, investors face a potentially far bigger challenge that can have an enormous impact on their ability to reach their financial goals: investing regularly.

It can be hard to maintain the discipline required to invest regularly. Market volatility, nonstop news and commentary, conflicting opinions, and simply the fear of the unknown can all conspire against us, leading even the most resolute investor to second-guess his or her intentions and often leading to poorly timed purchases or sales, or worse—inertia. Sometimes investors are so stymied that they end up doing nothing, simply sitting on the sidelines. That's where automatic investing can help.

Recognizing the challenges and temptations that can potentially derail investors or lead to less-than-optimal timing decisions, Schwab has long encouraged investors to put the strategy of dollar-cost averaging to work for them through AIP. And with the lower minimums for initial investments, AIP becomes available for small accounts and to investors who don't have a lot to invest upfront but want to build their portfolio over the long term.

Dollar-Cost Averaging: A Prudent Strategy

Dollar-cost averaging is a wealth-building strategy that involves investing a fixed amount of money at regular intervals over a long period regardless of share price. Many investors may already be practicing it if they participate in a 401(k) or 403(b) retirement plan in which contributions are made through regular payroll deductions. Instead of purchasing shares of one or more mutual funds in a single lump sum, dollar-cost averaging allows investors to spread their purchases over a longer period of time. In so doing, investors can reduce the impact of short-term market moves, which typically smooth out over time.

Here's how it works: Every month (or other regular interval), you invest a set amount of money in one or more mutual funds, regardless of how the overall market is performing. The net result is that when prices are lower, your fixed investment buys more shares; and when prices are higher, it buys fewer.

As an example, let's say you decide to invest $400 a month in a no-load mutual fund. The table below illustrates the implementation of such a plan over a hypothetical six-month period, during which the share price of the fund fluctuated considerably.

  Amount invested Price per share No. of shares purchased
Month 1 $400 $14.28 28
Month 2 $400 $13.33 30
Month 3 $400 $12.50 32
Month 4 $400 $12.90 31
Month 5 $400 $13.79 29
Month 6 $400 $12.12 33

If, instead of employing dollar-cost averaging, you had used the entire $2,400 at the outset to buy fund shares at their then-price of $14.28 per share, you would have purchased 168 shares. In this example, due to the fluctuation of the fund's share price, at the end of the six-month period you would have had 183 shares, purchased at an average price of $13.15 per share.

Of course, no strategy—dollar-cost averaging included—can protect against losses when share prices tumble. And in a rising market, it would make more sense to have purchased shares earlier, at a lower price. But without the benefit of hindsight, one never knows where prices are headed.

Schwab's lower investment minimums have the potential to give a whole new group of investors the ability to grow their portfolio over time. Regardless of the size of the contribution, it's surprising how it can accrue given the power of compounding. Here are a few examples:

  Over 15 years Over 30 years
Amount invested monthly Total invested Balance Total invested Balance
$50 $9,000 $13,364 $18,000 $41,613
$100 $18,000 $26,729 $36,000 $83,226
$250 $45,000 $66,822 $90,000 $208,065
$500 $90,000 $133,644 $180,000 $416,129

Combining dollar-cost averaging with mutual funds is especially attractive in that it helps investors reduce both their market risk and their company-specific risk. Spreading out investments regularly over time reduces the market risk—the risk of a poorly timed investment into a falling market—while the inherent diversification of a mutual fund spreads investor risk across many securities so that weakness among some are potentially offset by strength in others.

Advantages of dollar-cost averaging:

  • Overcomes procrastination. Because regular investments are smaller, it can be easier for investors to get started and to stay on track.
  • Maintains market participation. Dollar-cost averaging ensures participation in the market regardless of its conditions, removing the temptation to try to guess when the time is “right” to invest.
  • Minimizes regret. Whether it's sitting out a market rally or investing a large amount just before markets tumble, there's always the potential for second-guessing one's investment strategy. Dollar-cost averaging helps reduce it.

The Bottom Line

Long-term investing entails a frame of mind as well as a series of decisions and actions (or inactions). It requires persistence and discipline. But getting started sooner rather than later and regularly adding to your investments are two tangible steps you can take to greatly increase the likelihood of meeting your long-term financial goals. And with Schwab's new lower minimums available for more than 500 fund families and thousands of no-load, no-transaction-fee mutual funds, it has never been easier or more cost-efficient to build a diversified portfolio. 


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