If you want to learn how to invest in mutual funds, fortunately, there’s only a handful of key points to know before you get started. Although mutual funds are used by investment advisors and professional money managers all over the world, mutual funds can be the best investment types for beginners because they are diversified and straightforward, which means investors of all kinds can be successful without a lot of skill, time or money.
A mutual fund is an investment security type that enables investors to pool their money together into one professionally managed investment. Mutual funds can invest in stocks, bonds, cash or other assets. These underlying security types, called holdings, combine to form one mutual fund, also called a portfolio.
Before you choose a mutual fund to purchase, you will need to spend a little time learning the basics and studying a guide of best practices for investing in mutual funds. Success in almost anything and everything you seek to accomplish begins with knowing what to do and knowing what not to do.
- Don’t Stress: Investing with mutual funds is much easier than you think. The hardest part is just taking the first step.
- Save Money: There are thousands of mutual funds in the universe, but very few allow investors to get started with less than $1,000. Your options broaden significantly when you have at least $3,000. So build savings to at least $1,000 before shopping for mutual funds.
- Keep It Simple: Don’t make things more complex than they need to be. The most experienced (and honest) investors will tell you that you don’t need any exotic investments or a large number of mutual funds to be successful.
Consider the Best Funds for Beginners
Choosing the best mutual funds for beginners is not a matter of finding the best performers of the day. Instead, beginners are wise to know their investment objectives and plans and prepare for a long-term strategy.
- Buy No-Load Funds: A no-load fund is a fund that does not charge a load, which can be either a commission (front-load) or a contingent deferred sales charge (CDSC or back-load).
- Start With One of the Best No-Load Fund Companies: There are numerous good no-load fund companies, but two of the best are Vanguard and Fidelity.
- Use One of the Discount Brokerage Firms: Discount brokers like Schwab and Scottrade can be a smart, low-cost way for investors to gain access to thousands of different mutual funds.
- Consider S&P 500 Index Funds: To keep things simple, and to assume you are a long-term investor, you may consider using an S&P 500 index fund that invests in hundreds of the largest companies in the United States. You can always add to your portfolio later for more diversification.