Best Funds for Beginning Investors. Whether you are just getting started investing or wanting to build a portfolio from the bottom up in the best way possible, there are a handful of outstanding mutual funds to get the job done. Choosing the best mutual funds for is much more than buying the best performers of the past year. Instead, investors are wise to know their investment objectives and future plans and prepare for a long-term strategy. For example, if you’re saving for retirement, it’s likely your time horizon is more than ten years. It means you can take more risk, which essentially means you will likely have more of your investment assets allocated to stock funds than bond funds.
Investment Costs Are Low for Mutual Funds. Investors tend to overlook many aspects of building and managing a portfolio, and the most negative impact of those overlooked items often comes from expenses. Depending upon the brokerage firm or investment company, investors may be charged commissions for each purchase or sale of single securities, such as stocks. This can add up to hundreds of dollars per year, per account, depending upon the frequency and size of trades.
Mutual funds give investors the ability to diversify across a wide variety of investments that they otherwise may not carry in their portfolio as individual securities. Since mutual funds invest in a diverse range of securities and investment options, one mutual fund share actually represents proportionate ownership in each and every investment in the mutual fund’s portfolio. Of most interest to investors is that each share also proportionately represents the profits of those investments as mutual funds are required to pass along profits to their investors by way of mutual fund distributions, which come in several forms.
Building Your Portfolio. Building a mutual fund portfolio is similar to building a house: Many different strategies, designs, tools and building materials exist, and may be applied; but each structure shares some basic features. To build the best mutual funds portfolio, go beyond the sage advice, ”Don’t put all your eggs in one basket.” A structure designed to withstand the test of time requires smart design, a strong foundation and a simple combination of mutual funds that works well for your needs.
The mutual fund then passes along the profits (and losses) of those investments to its shareholders. So if a mutual fund does well, you benefit. But, they’re not risk-free. Read on to learn more about how mutual funds work.