Mutual funds are popular investing tools. A mutual fund is a group of investors who pay a fund manager to invest in stocks, bonds, and other securities on their behalf. There are thousands of funds available to fit your investment goals and your investing style. Here are some tips on getting started with investing in mutual funds.
First, you will need to choose a brokerage or financial advisor based on your investing needs. Mutual fund companies such as Vanguard, Fidelity, T. Rowe Price, or Schwab each have their own investments; financial advisors usually receive incentives from these brokerages to sell specific mutual funds. While you can invest in mutual funds from different brokerages through a single account, you will usually pay the smallest fees for investing through one brokerage and buying that brokerage's funds.
To help select a brokerage, research what mutual funds you want to purchase. Resources like Morningstar, Yahoo! Finance, and Google Finance are easy online tools for comparing the specific investments of mutual funds, reading about the fund managers directing the investments, and comparing the costs of one fund to another. You also want to select a brokerage that fits with your personal needs. For example, most Vanguard funds are index funds with high minimums, while Fidelity and Schwab have lower minimums, higher expenses, and more funds run by professional managers. Your goals in investing in mutual funds will largely determine what your brokerage needs are.
Once you decide where to open your account, you will need to contact the brokerage or visit their website. You will need to provide your personal information, as well as information for the bank account from which you will be transferring your money. Make sure you have your bank's routing number and a checking account number. Once your account is open, you will be ready to invest in mutual funds.
Your choice of mutual funds will depend upon your investing horizon and your risk tolerance. If you have a long investment horizon, at least 5 years, you may prefer stock mutual funds. If you have a shorter horizon or a lower risk tolerance, you may prefer bond funds or blended mutual funds that invest in a mix of investment classes.
Websites like Morningstar can help you find appropriate mutual funds based on whether you want stocks or bonds, growth stocks or value stocks, active or passive management, or any variety of details that differentiate the thousands of mutual funds in which you can invest.