Mutual Funderstanding

Mutual funds are a great way to invest in your future. If you invest in them over the long term, you’ll help build yourself a nice retirement nest egg. Here’s a quick guide to everything you need to know about mutual funds.

What is a Mutual Fund?

Mutual funds are an investment vehicle consisting of stocks, bonds, and other securities. Mutual funds usually create a more diversified portfolio than you can on your own.

Benefits of Mutual Funds

One of the main benefits of a mutual fund is diversification. When you buy a mutual fund, it’s often a cheap and easy way to gain access to a variety of stocks and bonds. That also makes mutual funds a lower investment risk.

How to Invest

Want to invest in mutual funds? Here are some steps you should take:

1. Active or Passive. You need to decide if you want an actively or passively invested mutual fund. Actively managed funds are managed by pros who try to beat the market. This comes with higher fees and doesn’t always come with bigger returns. Passively managed mutual funds have lower fees and simply try to mimic the market.

2. Consider Your Budget. When investing in mutual funds, consider how much you can afford. Mutual funds typically have a minimum investment amount, sometimes ranging from $100 to $3,000. Once you hit that minimum, you can decide to invest as much or as little as you want. You can find finds that have a $0 minimum, but remember, the less you invest, the lower your returns.

3. Fees. No matter which investment route you pick, you will be charged an annual fee for fund management. These fees — based on a percentage of the cash you invest — are called an expense ratio. A fund with a one percent expense ratio will charge you $10 for every $1,000 you invest.