When I started investing, I didn’t have much capital. Like many beginners, I wondered whether to put my first $100 into a mutual fund or an exchange-traded fund (ETF). Over time, I learned that the right choice depends on my investing style, time horizon, and costs. If you’re in a similar place—trying to decide between a mutual fund and an ETF for a $100 investment—this guide will help you make a thoughtful decision.
Table of Contents
What Is a Mutual Fund?
A mutual fund pools money from many investors to buy a portfolio of stocks, bonds, or other assets. It’s managed by professionals who try to meet a specific objective like growth or income. When I invest in a mutual fund, I buy shares at the fund’s net asset value (NAV), which is calculated once per day.
What Is an ETF?
An ETF works like a mutual fund in structure but trades like a stock. I can buy or sell shares of an ETF on an exchange throughout the day. Most ETFs track an index, such as the S&P 500. They offer low fees, high liquidity, and transparency. When I use a brokerage account with no trading commissions, ETFs often make more sense for small-dollar investments.
Comparing Mutual Funds and ETFs for a $100 Investment
| Feature | Mutual Funds | ETFs |
|---|---|---|
| Minimum Investment | Often $500–$3,000 | As low as price of one share (under $100) |
| Trading Flexibility | Trades at day’s end (NAV) | Trades anytime during market hours |
| Fees | May include loads or higher expense ratios | Generally low expense ratios |
| Accessibility | Good for automatic contributions | Ideal for DIY and real-time control |
| Tax Efficiency | Less tax efficient | More tax efficient |
Cost Considerations
For a $100 investment, costs matter a lot. A mutual fund with a 1% expense ratio would charge $1 annually. That may not sound like much, but over time it adds up. Compare that to an ETF with a 0.04% expense ratio, which costs just $0.04 annually per $100 invested.
Example: Investing $100 at 8% Annual Return for 30 Years
To see the power of compounding, I can calculate the future value:
FV = 100 \times (1.08)^{30} \approx 100 \times 10.06 = 1,006Even a small $100 investment can grow to over $1,000 in 30 years with no additional contributions.
Now, let’s assume a 1% fee eats into that return:
Adjusted\ r = 0.08 - 0.01 = 0.07 FV = 100 \times (1.07)^{30} \approx 100 \times 7.61 = 761That 1% fee reduces your long-term gains by nearly $250.
Best ETFs for Starting with $100
| ETF Name | Ticker | Focus | Expense Ratio | Share Price (approx.) |
|---|---|---|---|---|
| Vanguard S&P 500 ETF | VOO | U.S. Large-Cap | 0.03% | $480 |
| iShares Core S&P Total U.S. Stock Market | ITOT | Broad U.S. Equity | 0.03% | $110 |
| Schwab U.S. Broad Market ETF | SCHB | Total Market | 0.03% | $60 |
| SPDR S&P 500 ETF | SPY | S&P 500 Index | 0.09% | $500 |
| Vanguard Total Stock Market ETF | VTI | All U.S. Stocks | 0.03% | $260 |
Best No-Minimum Mutual Funds
| Fund Name | Ticker | Expense Ratio | Category | Minimum Investment |
|---|---|---|---|---|
| Fidelity ZERO Total Market Index | FZROX | 0.00% | U.S. Equity | $0 |
| Schwab S&P 500 Index Fund | SWPPX | 0.02% | U.S. Large-Cap | $1 |
| Vanguard STAR Fund | VGSTX | 0.31% | Balanced | $1,000 |
| T. Rowe Price Blue Chip Growth | TRBCX | 0.69% | Growth | $2,500 |
Fidelity ZERO funds are especially good for $100 investments because there’s no minimum and no fee. ETFs like SCHB or ITOT offer great flexibility and low cost with fractional share options available on platforms like Fidelity, Charles Schwab, or Robinhood.
Tax Efficiency
When I invest in a taxable account, ETFs tend to be more tax-efficient due to their structure. They don’t generate as many capital gains distributions as mutual funds. That’s why I prefer ETFs for long-term taxable investments unless I’m in a tax-advantaged account like a Roth IRA.
Automation and Contributions
If I want to automate my investing, mutual funds work better. Most mutual fund providers let me set up recurring contributions as low as $25/month. ETFs require manual trading unless I use a robo-advisor.
My Recommendation
If I only have $100 and want to invest once:
- I prefer an ETF with low fees and fractional share capability.
- I use platforms like Fidelity or Schwab to buy fractional shares of VTI or ITOT.
If I plan to invest $100 every month:
- I lean toward mutual funds that support automatic investing, like FZROX or SWPPX.
Final Thought
Both mutual funds and ETFs can help me grow wealth from a $100 starting point. ETFs offer lower costs and flexibility. Mutual funds offer ease of automation and structured investing. I focus on low fees, broad diversification, and consistent investing habits to let time and compounding do the heavy lifting.
