Thanks to computers and the Internet, investing in mutual funds has never been easier. That said, there are many important considerations an investor should take into account before adding shares of a mutual fund to their portfolio. Mutual funds come in a multitude of varieties, including those that focus on different asset classes, those that seek to mimic an index (also known as index funds), and those that focus on dividend stocks. The list covers everything from geographic mandates to those that specialize in investing in securities that fall within a certain market capitalization.
Mutual Funds Offer Transparency. Mutual fund holdings are publicly available (with some delays in reporting), which ensures that investors are getting what they pay for. Investors can also see the underlying securities (stocks, bonds, cash, or a combination of those) that the mutual fund portfolio holds. All of the information you need to know, plus some you don’t need for investing, will found in the mutual fund prospectus, which can easily be found on the mutual fund company’s website.
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Perhaps the greatest benefits of buying mutual funds are that they are simple enough for beginning investors to buy and manage but they are also powerful and productive enough for even the most seasoned of investors. This guide will walk you through the purchase of your first fund to building a complete portfolio of mutual funds. Choosing the Place to Buy Mutual Funds. Although you can buy mutual funds through a discount broker, such as Charles Schwab or Scottrade, the best way to buy mutual funds is through a mutual fund company. But you don’t want to start with just any mutual fund company; you’ll want to do a bit of research to find a reputable firm that has a broad selection of low-cost, high-quality mutual funds.
This is work that most of us are not interested in, do not have the time for, and, most importantly, are probably not as qualified to do. By purchasing shares of a mutual fund, you’re also purchasing the money management and investment skills of the fund manager whose job it is to invest and reinvest the mutual fund’s capital based on the fund’s established goals.
Mutual Funds Have High Sales Charges. Should a sales charge be included in the disadvantages of mutual funds list? It’s difficult to justify paying a sales charge when you have a plethora of no-load mutual funds. But, then again, it’s difficult to say that a sales charge is a disadvantage of mutual funds when you have thousands of mutual fund options that do not have sales charges. Sales charges are too broad to be included on my list of disadvantages of mutual funds.