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.
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.
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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.
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.
Balanced Funds: Also called hybrid funds or asset allocation funds, these are mutual funds that invest in a balanced asset allocation of stocks, bonds, and cash. The allocation usually remains fixed and invests according to a stated investment objective or style. For example, Fidelity Balanced Fund (FBALX) has an approximate asset allocation of 65% stocks and 35% bonds. It considered a medium risk or what industry experts might call a moderate portfolio. Vanguard also has an outstanding index balanced fund, Vanguard Balanced Index (VBINX), which is suitable for investors looking for moderate risk. Balanced funds can be ideal for beginning investors because they are well-diversified and can, therefore, be used as stand-alone investments or as core holdings to begin a larger portfolio.