Choosing the Best Funds. With thousands of mutual funds to choose from and hundreds of different fund families offering them, choice overload and the potential to make needless mistakes exists. Without a doubt, no-load funds are the best choice for mutual fund investors. Once asset allocation has been established, begin choosing the best mutual funds for you and your investment goals. When choosing from a broad selection of mutual funds begin by using a fund screener, or simply comparing performance to a benchmark. Consider other important qualities of mutual funds, such as fund fees and expenses (see the Expense Ratio), and manager tenure, as well. Most importantly be sure to choose a diverse selection of funds which combine to suit your risk tolerance and investing goals.
Getting Started. Investing begins before buying the first mutual fund (or prior to buying the next one). If you’re investing independent of a financial advisor, ask yourself a few questions: What do you hope to accomplish with your savings? A secure retirement? Accumulation of wealth for strengthening your financial security? What is your time horizon? One year? Five years? 10 years?
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That said, a “no-load” fund is not free. All mutual funds have internal expenses. Part of your investment dollars will help pay the fund company, the fund manager, and other fees associated with running a mutual fund. These fees will often be made transparent to you and are taken out of the assets of the mutual fund. You should always take the time to consider all the various fees and charges when investing in mutual funds.
Mutual funds can be structured in several different ways, including open-ended mutual funds vs. closed mutual funds being one particularly important distinction. To learn more about the way mutual funds are organized, you’ll want to read How a Mutual Fund Is Structured. You may also want to delve into Making Money from Mutual Funds, which explains how investors actually profit (or experience losses) from owning a stake in a mutual fund.
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.