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The 7 Best Funds for the Most Frugal Investors

With low expense ratios and no load, these funds won't empty your wallet

The best funds are often the cheapest. Therefore, the most frugal of investors can be the most successful. And if you are one of those frugal investors, you’ll want to see this list of the cheapest mutual funds that are accessible to the everyday investor.

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In general, the mutual funds with the absolute lowest expense ratios are available only to institutional investors and pension funds with millions of dollars in assets under management. So when we put together our list of best mutual funds for the frugal investor, we included only no-load funds with minimum initial purchase amounts of $3,000 or less.

And for the sake of diversity, we feature one mutual fund each from seven categories, including large-cap stock, mid-cap stock, small-cap stock, international stock, balanced funds, intermediate-term bond and high-yield bond.

So without further ado, here are the seven best funds for the most frugal investors:

Best Funds for the Most Frugal Investors: Fidelity Spartan 500 Index (FUSEX)

Best Funds for the Most Frugal Investors: Fidelity Spartan 500 Index (FUSEX)Expenses: 0.09%, or $9 for every $10,000 invested
Minimum Initial Investment: $2,500

The cheapest funds are generally index funds and the cheapest in the large-cap category is Fidelity Spartan 500 Index (FUSEX).

Index funds are like commodities in that each type of index fund is essentially the same thing. Therefore, assuming all other things are equal, the cheapest fund is the best. For example, if you’re buying sugar, there’s no good reason to buy a name brand when there is a cheaper alternative. The contents are the same!

So in the case of large-cap equity funds, the cheapest way for the everyday investor to gain access to stocks like Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Exxon Mobil Corporation (XOM) is to track the S&P 500 index with FUSEX.

Best Funds for the Most Frugal Investors: Fidelity Spartan Extended Market Index (FSEMX)

Best Funds for the Most Frugal Investors: Fidelity Spartan Extended Market Index (FSEMX)Expenses: 0.1%
Minimum Initial Investment: $2,500

Fidelity wins the battle of frugality again in the mid-cap category with Fidelity Spartan Extended Market Index Fund (FSEMX).

The “extended market” aspect of FSEMX refers to its stretch across mid-cap and small-cap holdings. The index fund works well as a complement to an S&P 500 index fund because it captures the market of U.S. stocks that are not in the S&P 500.

Therefore, investors who want a pure mid-cap index fund, with no exposure to small-cap stocks, might consider another mid-cap stock index fund with rock bottom expenses like Fidelity Spartan Mid Cap Index (FSCLX), which has an expense ratio of 0.22%.

Best Funds for the Most Frugal Investors: Northern Small Cap Index (NSIDX)

Best Funds for the Most Frugal Investors: Northern Small Cap Index (NSIDX)Expenses: 0.15%
Minimum Initial Investment: $2,500

For the small-cap mutual fund category, we found the lesser-known but extremely cheap Northern Small Cap Index (NSIDX).

The fund seeks to track the Russell 2000 index, which is the primary benchmark for most small-cap stock funds. Therefore if you want to capture the small-cap equity market in the cheapest way possible for the everyday mutual fund investor, NSIDX is the fund for you.

Although low expenses are crucial to success for index funds like NSIDX, the management’s skill in tightly tracking the respective index is just as important. The fund has been around for more than 16 years and the performance has tended to track the Russell 2000 index in a range that is close to the fund’s expense ratio of 0.15%.

For example the return of -4.56% in 2015 is 15 basis points off of the index, which had a return of -4.41. Returns for longer periods are within 20 to 25 basis points of the index.

Best Funds for the Most Frugal Investors: Vanguard Total International Stock Index (VGTSX)

Best Funds for the Most Frugal Investors: Vanguard Total International Stock Index (VGTSX)Expenses: 0.19%
Minimum Initial Investment: $3,000

Vanguard takes the prize for cheapest international fund with Vanguard Total International Stock Index (VGTSX).

Not only do investors get a rock-bottom expense ratio of 0.19%, but VGTSX also offers broad exposure to foreign stocks, investing in over 5,000 companies in developed countries. Regional exposure is approximately 50% Greater Europe, 41% Greater Asia and 9% Americas.

VGTSX is a cap-weighted index fund; therefore, the average market cap is large, with top holdings in big foreign stocks like Nestle (NSRGY), Roche Holding Ltd. (ADR) (RHHBY) and Novartis AG (ADR) (NVS).

Best Funds for the Most Frugal Investors: Vanguard Balanced Index (VBINX)

Best Funds for the Most Frugal Investors: Vanguard Balanced Index (VBINX)Expenses: 0.23%
Minimum Initial Investment: $3,000

The cheapest balanced fund available to everyday investors is Vanguard Balanced Index (VBINX).

Balanced funds come in three basic categories — conservative allocation, moderate allocation and aggressive allocation. Taking the middle of the road, we decided to highlight moderate allocation, which includes funds that will typically have an asset allocation of roughly two-thirds stocks and one-third bonds.

With a simple and boring allocation of 60% stocks and 40% bonds, VBINX offers more than a low expense ratio of 0.23% with it’s impressive historical returns. VBINX has outperformed the moderate allocation category with performance ranks averaging in the top quarter.

The stocks are mostly large-cap and the bonds are of high quality, with average credit ratings of AA.

For investors with at least $10,000 to spend, shares of Vanguard Balanced Index, the admiral share class (VBAIX) has an even lower expense ratio of 0.09%.

Best Funds for the Most Frugal Investors: Northern Bond Index (NOBOX)

Best Funds for the Most Frugal Investors: Northern Bond Index (NOBOX)Expenses: 0.15%
Minimum Initial Investment: $2,500

Another fund from Northern Trust Investments, Northern Bond Index (NOBOX), makes our list of best funds for the most frugal investors, this time for the intermediate-term bond category.

Although Vanguard and Fidelity offer most of the cheapest no-load funds on the market, NOBOX edges out both of them for the cheapest total bond market fund. And when a fund is simply tracking an index, the fund with the lower fees tends to win out in performance, especially if the fund does a good job of tracking its index — in this case, the Barclays Aggregate Bond index.

So how does NOBOX stack up against the big indexers? Compared to the biggest bond fund in the world, Vanguard Total Bond Market Index (VBMFX), NOBOX edges it out in performance by at least a few basis points in the one-, three- and five-year returns.

Best Funds for the Most Frugal Investors: Vanguard High Yield Corporate (VWEHX)

Next Page Best Funds for the Most Frugal Investors: Vanguard High Yield Corporate (VWEHX)Expenses: 0.23%
Minimum Initial Investment: $3,000

If you’re looking for a low-cost, high-yield bond fund, you can’t beat Vanguard High Yield Corporate Bond (VWEHX).

In fact, in our research for the cheapest high-yield bond funds, we only found about a dozen with expense ratios lower than 0.5%. And VWEHX is half that!

What’s even more amazing is that VWEHX is not an index fund.

VWEHX has been around for over 30 years and it has been managed by Michael L. Hong of the legendary Wellington Management Company for nearly eight years. During his tenure, VWEHX has consistently beat 70% to 80% of funds in the high-yield category.

And if you’re looking for income, you’ll love the 6.6% yield, which is accomplished without diving too deeply into junk — the average credit rating for the bong holdings in VWEHX is ‘B,’ which is near investment grade.

To cap our list of best funds for the most frugal investors, keep in mind that not all no-loads trade without transaction fees. Even though there is no load and the expense ratio is rock-bottom, some discount brokers charge transaction fees for certain funds. So be sure to look for “no transaction fee” or NTF funds before buying.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. However he holds FUSEX, VBMFX, and VBINX for some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/best-funds-frugal-investors/.

©2019 InvestorPlace Media, LLC