Investing: to some people this is an exciting step into the world of building wealth and saving for the future. There are those who love to dig into the finer details of trading, who have the Dow and the S&P scrolling on their various screens and mobile devices at all times, who delight in taking chances with short-term trades—sometimes winning big and sometimes taking a hit.
Then there are those who find the prospect of investing overwhelming—or overwhelmingly boring. Between the jargon and the scrolls of numbers and mountains upon mountains of data and symbols, it can seem impossible to learn the language well enough to make smart decisions that help build your financial security.
And let’s face it: the financial community does not have a track record of being the most inclusive bunch when it comes to asking beginner questions. You know you should start investing so that your savings have the best chance to grow over time, but it’s hard to figure out where to start—or where to find clear answers to questions that matter to you.
Utilizing mutual funds and exchange traded funds is a good place to start. These products can help you create a balanced and diversified portfolio so you don’t have to spend your days poring over the stock market. In this article, we’ll look at some examples of mutual funds, how to find some of the best performing mutual funds, and cover how to buy mutual funds online.
Why Invest in Mutual Funds?
Mutual funds are funds that are made up of a mix of different securities like stocks and bonds. When you buy a share of a mutual fund, you’re buying a fraction of all the securities in the fund. The benefit of this is diversification.
For most beginning investors looking to put a few hundred or a few thousand into an investment portfolio, it would be difficult, expensive, and time consuming to buy enough individual stocks and bonds to create a balanced portfolio.
Buying shares of a fund, on the other hand, gives you access to more diversity. So, if one of the stocks in your mutual fund tanks, that loss will be balanced out by other securities that are continuing to perform well. If, on the other hand, you only had your savings invested in the stocks of two or three companies, and one of those companies goes bankrupt, you’ll take a much bigger loss.
Mutual funds are overseen by money managers whose job it is to monitor the holdings in the fund and make adjustments with the goal of bringing in more capital gains and higher returns for their investors.
The funds can be actively managed or passively managed. An actively managed fund is one in which securities might be more heavily traded with the hopes of bringing high returns, while a passively managed fund might be overseen more conservatively, with smaller adjustments made in order to maintain balance.
What Are Some Examples of Mutual Funds?
There are many different types of mutual funds, which are made and managed to give investors access to different types of investments strategies. Here are a few categories of mutual funds:
Asset class funds:
These are funds that are designed around the concept of investing in similar types of assets that have similar risks such as small cap growth stocks or high-yield bonds. These mutual funds help you diversify over a single asset class and are just one part of a balanced portfolio.
Industry funds invest in a mix of securities within a specific market or industry such as technology, oil, or agriculture. Similar to asset class funds, they help you invest in a range of companies within a specific area.
Target date funds:
Target date funds work a little differently. They are a set-it-and-forget-it investment tool designed to help you grow your investments over a set period of time. These are mostly intended for retirement portfolios.
For instance, a forty-year target date fund will carry higher risk securities in the beginning years with the goal of potential high returns. Then, over time, the fund will steadily shift towards lower risk investments designed to retain growth from earlier years. These can be a good option for those who don’t want to spend a lot of time managing their 401(k)s or IRAs.
Exchange traded index funds:
Exchange traded index funds (ETFs) are a little different than traditional mutual funds but have become a popular and cheaper alternative in recent years. ETFs are designed to track an index like the S&P 500 or the Russell 2000 and carry the same proportion of securities in these indexes.
For instance, if you invest in an ETF that tracks the S&P, your investments are likely to rise and fall very similarly to the index on a daily basis. Because ETFs track indexes, they require little overseeing by money managers and thus have much lower fees than other mutual funds.
While a mutual fund is only priced once a day and is bought and sold through its sponsor, an ETF can be traded like a stock between investors, and like a stock, its value changes throughout the day.
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What Are the Best Performing Mutual Funds?
This is a tough question to answer, as it depends a lot on what kind of performance you’re looking for. The best performing mutual fund for short-term growth probably won’t be the best mutual fund for long-term growth. It also depends on the category of mutual fund you’re looking for.
There are many companies out there that have made a business out of rating stocks and mutual funds, and plenty of investment experts eager to predict future performance.
Reading up on what the experts think and consulting the ratings is one way to get engaged and learn about investing.
Doing so might lead you to some great investment choices (or at least steer you from some bad ones), however it’s important to keep in mind that mutual funds are primarily rated based on their past performances, and past performance is not an accurate predictor of future performance.
Before choosing mutual funds, consider what your investment goals are, how much investment risk you’re comfortable taking on, and how involved you want to be in managing your portfolio. Working with a professional can often help you clarify your goals and choose mutual funds that work for you.
Investing in Mutual Funds Online
In the past, most people worked one-on-one with financial advisors and financial planners in their communities to help them manage their portfolios. While these professionals help people invest and help people keep their portfolio balanced through market fluctuations, their services also cost quite a bit—which could cut into savings, particularly in years when the market was down.
Online investing has changed this model quite a bit. In fact, it can be quite cost-effective to buy mutual funds online yourself.
In order to buy mutual funds (or stocks or ETFs) you’ll first have to open an investment or brokerage account. Some investment accounts are set up for retirement purposes, like 401(k)s and IRAs, and come with tax incentives. These may have some restrictions on the types of mutual funds and securities you can invest in.
Related Content: What is an Individual Retirement Account?
Once you’ve got an account and have transferred in the savings you want to invest, you can pick the mutual funds you want to buy and simply buy them. Most banks will charge a small commission fee when you trade securities.
You might also want to consider opening an online wealth management account to start your portfolio. For example, with a SoFi Invest® account, you can access complimentary advice tailored to your investment goals as well as technology that helps you choose the right mix of securities to fit your needs.
For those who want to invest and grow their wealth stress-free without having to learn and monitor the markets, an invest account might be the right solution.
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SoFi can’t guarantee future financial performance.
Diversification can reduce some investment risk. It can’t guarantee profit or fully protect against loss.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.