What is a mutual fund?
Mutual funds are funds that are made up of either a collection of bonds or stocks. Usually some sort of financial company or portfolio manager will be managing these mutual funds. Each mutual fund you encounter will often contains stocks or bonds from one specific sector or subsection of the stock market. For example, there are mutual funds for just the health sector and ones just for the real estate sector. Each mutual fund contains their own ticker symbol. These mutual funds will often go up and down depending on the individual stocks and bonds that make up the mutual fund.
Another thing you should know about mutual funds is that they charge fees. Most funds will have a fee that is between 0% and 1%. The cheaper the fee, the better your return. A .17% fee on a $10,000 investment will cost you $17 in fees.
Why invest in a mutual fund?
Mutual funds are an awesome thing to invest in because it allows you to diversify your portfolio (in a way). The fact that a mutual fund may contain 10+, 20+. 30+ stocks or bonds means that one bad egg won’t ruin your investment completely.
What do you need to invest in a mutual fund?
The answer is pretty obvious. You need money and a lot of it too. Mutual funds differ from stocks because you need a set amount in order to invest in a mutual fund. In stocks, you could buy a $1 stock if you wanted too. On the other hand, most mutual funds will require that you have about $3,000 before you can invest in a mutual fund. Naturally there are some mutual funds that require less than $3,000 (there are some that requires more than $3,000 too).
Once you have the money, it’s suggested that you do some research on the mutual fund you might want to invest in. Then find out which investment company is current offering these mutual funds. Make sure to look at the past history/charts of the mutual funds as well. You might not want to invest in a certain mutual fund if it has never in the green. Of course this is not evidence that the mutual fund won’t make money. It’s just a tell-tale sign of what you can expect.
Take advantage of retirement accounts
One benefit to investing in mutual funds (and investing in general) is that you can open IRAs and the likes to help you defer your tax. The amount of taxes that you can defer will depend on which kind of account you open. Each account also varies on when the taxes get deferred. Make sure you do your research so that you know what you are getting into. Regardless though, if you plan on saving for retirement, you might as well put it in an IRA to save yourself some money during tax time.
Once that’s all done
The next step is to look for the correct investment company to start investing in the mutual fund of your choice. For example, one of the first mutual funds that I’ve ever invested in was Vanguard Star (VGSTX). This was the first mutual fund I ever bought because it only required a starting investment of $1,000. It was also under the Vanguard Group which often had very cheap investor fees for a lot of the mutual funds. Hence, transfer your money into whichever company you want. Then buy your mutual fund and just wait for the money to (hopefully) roll in! Keep in mind that you’ll be charged a small fee every so often. Unless you get a low-performing fund, these fees should not effect you too much. Although a few could affect you in the long run if it’s a really high number.