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.
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.
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Frugality: Mutual Funds Cost Less to Manage Than Other Portfolio Types, Costs as a percentage of assets in the portfolio are usually lower for an actively-managed mutual fund when compared to an actively-managed portfolio of individual securities. When you add up transaction costs, annual fees paid to a brokerage firm, and the cost for research tools or investment advice, mutual funds are less expensive than the typical portfolio of stocks. Other variables influence the cost of managing a portfolio, such as the amount of trading activity, the size of transaction, and taxes.
However mutual funds can be significantly less expensive. A mutual fund manager will place all the necessary trades to maintain the mutual fund portfolio but the investor may only be responsible for one low expense. But if investors are not careful, investing in mutual funds can be more expensive than buying individual stock securities. To keep costs low, mutual fund investors are wise to buy no-load mutual funds with low expense ratios. Costs can also be minimized by investing with one of the best no-load mutual fund companies like Vanguard, Fidelity or T. Rowe Price, all of which have a diverse selection of no-load funds with low expense ratios.
Mutual Funds Offer Automatic Reinvestment. An investor can easily and automatically have capital gains and dividends reinvested into their mutual fund without a sales load or extra fees. Unless you are looking for income (i.e. dividends separated and deposited into cash for income reasons), you’ll want to choose the option to reinvest dividends and capital gains. This will take advantage of compounding interest, which essentially means that the interest, dividends, and gains will go to buy more shares of your mutual funds, rather than the cash coming out and being deposited into a separate account.