Some people want to get involved in investing but have no idea where to start. Learning about stocks can be very time consuming. Even if you think you know a bit about them, it’s still hard to make the right decisions of when to buy and when to sell. One easier way of making potential profits is to learn how to invest in mutual funds.
A mutual fund can consist of stocks from dozens if not hundreds of different companies, so when you invest in one, you are buying small pieces of all of the companies. Some of the stocks might turn out to be profitable and some may not. Ideally, the overall value of the mutual fund should turn out to be in your favor over time.
Another benefit of investing in mutual funds is that it’s an easy way to diversify your portfolio. Just select a few different types of funds to put your money in. Spreading your money across a variety of funds reduces your risks if a specific market goes downhill. There are funds that focus on a particular asset class, some that focus on dividend stocks, some with focus on commodities, and so forth.
In short, mutual funds serve as a sort of alternative for any investor who cannot afford an individually managed account. They are formed with multiple investors with smaller amounts of money pool it together to create a “consolidated pool portfolio”, and then hire a manager to run it.
How to Invest in Mutual Funds With a Broker
If this is something you think you’d want to do, then you’ll need to know how to invest in mutual funds, exactly. Unlike stocks, which are usually purchased in shares, mutual funds are bought in dollar amounts, and you can buy them directly from the mutual fund company itself, a brokerage firm, or bank.
You might see references to some being called “load” and some being called “no-load”. This means that you may or may not have to pay a commission. If you have an investment advisor or professional assisting you with the purchase, you will likely have to pay a commission. Also, mutual funds have internal expenses, so part of your money will help pay not only the fund company but the manager and other fees as well.
Selecting the right mutual funds is essential as well. Speaking as broadly as possible, there are three categories: fixed income (such as bonds), equity (stocks) and money markets, which are similar to cash.
To learn more details about the sub-categories, and which ones would be right for your portfolio, Capitalist Exploits is a good place to start. It’s a good place to start learning about investing in general, as well as how to invest in mutual funds.