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Americans outside the highest tax brackets are getting checks for $600 to $1,200 in their mailboxes and bank accounts, thanks to Uncle Sam. (Click here to check with the IRS on your eligibility.) So, I'm here to help you figure out what to do with the money.
It seems funny to me: The economic mess was caused by individuals, companies and hedge funds taking on way too much debt, so our solution is for the government to go into more debt and cut everyone a tax rebate check. I'm very much in the same camp as my colleague Christine Benz, who recently advised readers to pay off debt with the money.
However, if you're in good shape on that front, I'd suggest investing it in a mutual fund and watching it grow.
Even a modest investment can grow into something meaningful over time. What's more, if it's your first or second fund, it provides a great place for you to send more money over time, so that before you know it, you're talking about some serious money. One of the most important factors in how comfortably you retire is how soon you start saving.
So, let's get right to it. To start, think about the Vanguard Star (VGSTX) fund, which invests in other low-cost Vanguard funds. But there are other choices besides the Star fund.
I'll share five good no-load and five good adviser-sold funds, all with minimum investments of $1,000 or less. I chose all 10 from Morningstar's FundInvestor 500 list of mutual funds.
No-load funds
- Harbor Bond (HABDX). Minimum investment: $1,000. If there's something you want to buy in the next few years, a bond fund is a good place to build up your stash. The good ones are pretty dependable and offer decent returns. Harbor Bond just happens to be one of the best. It has low expenses and is run by Bill Gross and the rest of Pimco, one of the best bond shops around. The fund sticks with high-quality debt but frequently beats its peers and its index by making clever macroeconomic bets.
- Julius Baer International Equity II (JETAX). Minimum investment: $1,000. This one is run by former Morningstar Managers of the Year, and it makes top-down bets with uncanny accuracy. The record here is fairly brief, but managers Rudolph-Riad Younes and Richard Pell have built a great long-term record with Julius Baer International Equity I (BJBIX). The only difference is that Baer International I invests a bit in small caps, and Baer International II doesn't. Needless to say, foreign stock funds like these require more than the few years' time horizon of a bond fund.
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- Oakmark Select (OAKLX). Minimum investment: $1,000. I'm still recommending this fund despite its brutal slump. I'm a contrarian, and I believe that you stick with good managers with strong track records as long as they're still sticking to their strategy. In fact, after a slump is often the best time to buy. As a shareholder, I'm optimistic there's a rebound on the way.
- Pax World Balanced (PAXWX). Minimum investment $250. This fund is an easy one to hold on to because it adds a 25% fixed-income stake to a 75% stake in equities. Over time, that's helped to smooth out the bumps a bit. Manager Chris Brown has built a strong record at this socially screened fund. He follows a blue-chip growth strategy that has lots of U.S. multinationals that sell a lot overseas, such as Deere (DE, news, msgs) and Procter & Gamble (PG, news, msgs).
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- Transamerica Premier Equity (TEQUX). Minimum investment: $1,000. This large-growth fund is the most aggressive of my 10 low-minimum picks, but it's worthwhile if you have a long time horizon. Manager Gary Rolle looks for companies with strong growth prospects and competitive advantages. He builds a concentrated low-turnover portfolio of the best names he turns up. The fund boasts top-quartile performance over the trailing three-, five- and 10-year periods.