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Investing in index funds is great for beginners, but you may wonder if you have enough money to get started.
There is no index fund minimum investment amount, and you can easily diversify a small amount of money over different funds. As long as you have enough money to buy one share of an index fund, you can purchase it. However, to purchase an index fund, you’ll need to open a self-directed investment account, which may have a minimum deposit. These minimum initial deposit amounts will vary by the bank, and should be considered alongside other fees the bank may charge.
Let’s expand on this some more.
Index Fund Minimum Investment
As mentioned above, there is no minimum amount of money to purchase index funds so long as you can purchase one share of the ETF.
Index funds are exchange traded funds (ETFs). They trade similar to shares of a company, but rather than purchasing a share of a single company, you purchase a share of a fund that holds a number of companies.
So to purchase an index fund, you need to have enough to purchase at least one share. Now the price for one share can vary depending on the index fund, what index it tracks, and who issues it. There are index funds that cost less than $10 per share, up to over $100 per share (see the range of BMOs ETFs for example). Index funds can also do stock splits, where they split the shares to reduce the price. So they may do a 3 to 1 split, which would mean the price is cut in 3, and you now own three times more shares (your value doesn’t change – you just own more at a lower price).
So the index fund minimum investment is whatever the price of the index fund is. This means that you can diversify across index funds (e.g. S&P 500, TSX, International) without much money. This is great for weathering any market downturns.
Getting started with purchasing index funds can be done with not a lot of money, so don’t feel that you don’t have enough money to get started investing!
Self-Directed Investment Account Minimum Deposit
Though you may be able to purchase an index fund for as little as $10, to purchase an index fund you’ll need to open a self-directed account which may have a minimum deposit.
These minimum deposits can range, but you’ll need to deposit at least this amount to open an account and trade. Be aware the minimum deposit isn’t the only consideration – there’s also trading commissions or other fees. So make sure you review the terms before deciding on a bank. Here are some of the minimum deposits for Canadian brokerages (as of August 2023):
- Questrade – $1,000
- BMO Investorline – No minimum
- Wealthsimple Trade – No minimum
- National Bank Direct Investing – $1,000
- TD Direct Investing – No minimum, but fees if the balance is below $15,000
If you have less than the amounts listed above you could opt for an account with no minimum,. Again make sure you read all the terms to make sure you’re not paying for any unnecessary fees.
Get Started
As the saying goes, time in the market is more important than timing the market. So the earlier you can get started the better. Get started with what you have, and keep contributing and growing your wealth as you go.