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.
Joint Brokerage Account: This works the same as an individual brokerage account, except there are two account holders, such as spouses.Individual Retirement Account: Also called an IRA, qualifying individuals can make contributions that are not taxable. Growth is tax-deferred, which means that account holders don’t pay taxes until withdrawals are made. Roth IRA: This is an individual retirement account that is funded with after-tax dollars, which means contributions are not tax-deductible, as with the traditional IRA. However, growth is tax-deferred and qualified distributions (withdrawals) are tax-free. For more on the Roth and the traditional IRA, see this article on how IRAs work.
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Saving for Your Initial Mutual Fund Purchase. Most mutual funds have what’s called a minimum initial purchase, which is the amount you’ll need to have saved prior to buying shares of your first fund. Most mutual fund companies have minimum initial purchase amounts of at least $1,000. For example, most of Vanguard’s mutual funds have a minimum initial purchase requirement of $3,000. Fidelity funds are typically at $2,500. However, once you make your first purchase, subsequent purchases of the same fund are usually as low as $100.
The Basics of Mutual Fund Taxation
Choose Wisely When choosing mutual funds for your portfolio, do your homework. Review each fund’s fees and individual asset allocation to make sure you’re choosing a fund that fits your investment goals and risk tolerance. Also, consider a fund’s performance. While past history doesn’t guarantee future results, it’s also wide to look at how much a fund has gained or lost in the past.