Mutual funds can be a great fit for a first-time investor. Because they’re managed by a professional, you don’t have to wrack your brain about what individual stock or bond to buy or when to buy it or sell it. At the same time, you get a fairly diversified portfolio in one fell swoop, which involves much less risk than if you invest in only one stock. If you’re uncomfortable with the kind of risk that stocks present, find a good mutual fund for your launch into investing.
Starting out with a mutual fund doesn’t represent the end of your quest; it’s the beginning. You can always select a handful of decent stocks down the road to add to your portfolio. With more than 8,000 mutual funds to choose from, the world may be your oyster, but you eventually have to make selections that suit you best. In the next three sections, I talk about three types of mutual funds that can be good first investments.
Make sure that you check out a Morningstar or Value Line report on each fund you’re considering; one-, three-, five- and ten-year performance track records can yield valuable information.
You want to see consistent returns over time and relatively low expenses (ideally 1% or less). If you read the report carefully, you can also get a sense of how a manager approaches his or her investments, and whether the style is more aggressive than you’re comfortable dealing with.
Also review the fund’s prospectus, which outlines the fund’s investment objectives and policies, expenses, and risks. Some better mutual fund companies are starting to graphically depict the worst quarter and year they’ve experienced, along with the best, so that you can quickly get an idea of how low and high the fund may go with your money.
Starting out with a mutual fund doesn’t represent the end of your quest; it’s the beginning. You can always select a handful of decent stocks down the road to add to your portfolio. With more than 8,000 mutual funds to choose from, the world may be your oyster, but you eventually have to make selections that suit you best. In the next three sections, I talk about three types of mutual funds that can be good first investments.
Make sure that you check out a Morningstar or Value Line report on each fund you’re considering; one-, three-, five- and ten-year performance track records can yield valuable information.
You want to see consistent returns over time and relatively low expenses (ideally 1% or less). If you read the report carefully, you can also get a sense of how a manager approaches his or her investments, and whether the style is more aggressive than you’re comfortable dealing with.
Also review the fund’s prospectus, which outlines the fund’s investment objectives and policies, expenses, and risks. Some better mutual fund companies are starting to graphically depict the worst quarter and year they’ve experienced, along with the best, so that you can quickly get an idea of how low and high the fund may go with your money.
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