JonathanClements

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Sellers of lottery tickets suggest all you need is a dollar and a dream. Forget that nonsense: If you want a decent shot at making money, you’ll need at least $50—and instead of lottery tickets, try a few carefully chosen mutual funds.

Looking to get started as an investor? Here are my top five suggestions for those without much money:

Your employer’s plan

This is a no-brainer, and not just because of the tax advantages and possible matching employer contribution. Many 401(k) and 403(b) plans, especially those offered by large employers, include a select list of low-cost mutual funds. That makes it relatively easy for employees to build sensible portfolios.

On top of that, there’s no required minimum investment. Got younger colleagues or children in their 20s? Prod them to sign up for their employer’s plan. When I was at Forbes magazine in the late 1980s with a miserably low salary and a young family to support, I initially didn’t contribute to the retirement plan. To my surprise, I got a call from the company’s treasurer, who cajoled me into signing up. He said I’d quickly get used to living without the money—and he was right.

Vanguard’s target funds

Target-date retirement funds, which offer diversified portfolios geared to folks retiring at or close to the year indicated in each fund’s name, have been criticized as cookie-cutter solutions that are either too risky or not risky enough.

Ignore the naysayers. I think the funds are a great choice for most investors, who would struggle to put together anything better on their own or working with a financial adviser.

Vanguard Group’s target-date funds charge average annual expenses of just 0.17%, or 17 cents a year for every $100 invested, and have a $1,000 minimum. Each fund owns a mix of market-tracking stock- and bond-index funds. That mix becomes more conservative as a fund approaches its target date.

Schwab’s index funds

Charles Schwab offers five conventional stock-index mutual funds and three bond-index funds, all with $100 minimums. Its U.S. total stock-market fund charges a slim 0.09%, its international-index fund levies 0.19% and its total bond-market fund costs 0.29%. All three funds would make good core portfolio holdings.

Exchange-traded funds

Instead of buying index-mutual funds, you could open a brokerage account and purchase exchange-traded index funds. Both types of funds seek to track the performance of an underlying market index. ETFs, however, are listed on the stock market and can be traded anytime the market is open, while mutual funds can be bought and sold just once a day, at the market close.

Merrill Edge, ShareBuilder, TD Ameritrade and TradeKing have no required minimum to open a brokerage account, while E*Trade will let you start an account with $500. Schwab requires $1,000, but it will waive that minimum if you add $100 a month to your account.

Some brokerage firms let you trade certain ETFs without paying a commission. That’s attractive. But before buying, check that a fund’s annual expenses are low, preferably below 0.2%. As a rule, ETFs should have lower fees than comparable mutual funds, because they don’t incur the cost of handling shareholder accounts; that’s done by brokerage firms. You might start with three ETFs: a broadly diversified U.S. stock fund, U.S. bond fund and foreign-stock fund.

Actively managed funds

Regular readers know my fondness for index funds. What if you prefer actively managed funds?

Artisan Funds, Buffalo Funds and Scout Investments will waive their regular minimums if you agree to invest $50 or $100 automatically every month. Alternatively, for a $500 initial investment, you can buy into the Homestead Funds and some of the Nicholas Company funds.

But if you want active management and you can get together $1,000, I would consider one of T. Rowe Price Group’s target-date retirement funds. That $1,000 minimum applies if you buy the funds in an individual retirement account. I’m not predicting the T. Rowe funds will perform better than other funds mentioned here. But I like the broad diversification they offer.

A final point: An account with $100 or $1,000 won’t do you much good. Want to amass decent money? In your initial years as an investor, the key driver of your account’s growth won’t be the investment returns you earn. Rather, what matters is the dollars you sock away, so be sure to save as much as you can each month.