Investing in a mutual fund is very easy and anyone with a bank account can do it. The real question is how to invest in mutual funds without getting ripped off or losing your money!
There are literally thousands of different mutual funds that you can invest in. If you have no idea what a mutual fund is, I recommend reading our article, What Are Mutual Funds, so you can understand the basics behind them.
How to Invest in Mutual Funds
As a reminder, a mutual fund is just a collection of stocks, securities, commodities, and (or) futures. A manager will buy into one or all of these types of investments (depending on the fund) and lump them together. You can then buy shares of that fund and in turn buy a small piece of all the investments.
Since running a mutual fund is all about having enough money and investors to start the fund, there are literally thousands of these funds you can choose from. Every major bank in the USA has multiple mutual funds that you can invest in, and the major stock brokerages and investment companies have mutual funds that you can purchase into as well.
Given all your options for investing, learning how to invest in mutual funds is easy. All of the below are options:
- Calling your bank or checking their website for information on their mutual funds;
- Asking your Human Resources department for information on company-sponsored mutual funds;
- Investing your money with a brokerage and purchasing into their mutual funds;
- Investing directly into various funds through a broker.
Below, I will be covering each of these mutual fund investing methods in detail.
Investing in Mutual Funds Through Your Bank
Most major banks in the USA (and other countries) have mutual funds available that you can invest in. By investing in your bank’s funds, you can often skirt purchasing fees and manage everything online through one platform, which is convenient.
Investing in Mutual Funds Through Work
Most companies offer some sort of retirement package founded around your 401k or 403b. You can invest this money into mutual funds if you desire. You can often decide right at work where you want to invest in or alternatively if you like you can take control of this and move it over to an online broker.
Investing Into Mutual Funds Through a Broker
For those with larger investments, you can often invest through a broker (typically through a major brokerage firm, but private brokers work too and are often cheaper).
A broker may have his or her own mutual fund where they like to invest their clients’ funds. Of course, the success of such a fund depends on your broker, so your mileage may vary.
Investing Directly Into a Mutual Fund
If you just have some money sitting around that you want to learn how to invest in mutual funds, you can deposit it directly into an online broker such as eTrade or Scottrade.
Through such online brokerages you can view thousands of different mutual funds which are taking new investors. At the time of this writing for example, there are over 7,000 mutual funds that you can invest in through eTrade.
However, how do you decide which fund to invest in? That is a big question as well!
How to Invest in Mutual Funds Wisely
There are a lot of great investors that think mutual funds tend to be a waste of money, simply because most fund managers are unable to outperform the market to the extent where they can pay their own salary and offer returns higher than the market average.
However, they can be a great way for the new investor or average investor to save for retirement. If you do not have the time or desire to become a proficient investor, you can always invest into a highly diversified mutual fund to save yourself the hassle of picking out the best stocks in various markets.
Of course, when you cast your net widely like this, your returns can only be so good. Stocks are not a zero-sum game, but there are always winners and losers, so if you invest in everything you get some of both.
Another thing to check for is the management fee of your mutual fund. A great fund with a great manager can still offer less-than-market returns if the manager’s fee is too high. The higher the manager’s fee, the less valuable your fund becomes. Once you know what type of fund you want, be sure to look around for the lowest management fee for that type of fund.
If you are saving for retirement, be sure your mutual fund is truly diversified. Do not look at the name of the fund but actually see what the fund has put its money in. There should be a nice mix of stocks, commodities, and securities. The closer you are to retirement, the more money you will want in liquid (cash), precious metals, and securities, as these tend to be safer than stocks, so be sure to look for those in your mutual fund if you are older.
How to Invest in Mutual Funds Conclusion
Investing in mutual funds is very easy – there are literally thousands available to you waiting for your investment. You can use your bank, your work, or a brokerage to invest in such funds. Be sure to watch out for mutual funds with high management fees or mutual funds that are not diversified.