This article was reviewed by Robin Hartill, CFP.
Heck, wed buy them at $100 a share.
Compiling an investment portfolio would be like taking on a second job.
Thankfully, the mutual fund was created so people could invest without being experts on individual stocks.
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What Is a Mutual Fund?
A mutual fund is a pool of investments thats mutually funded by a group of people.
The risk of investing in a mutual fund is lower compared with investing in just one or two stocks.
The modern mutual fund aims to beat the market.
Youre probably like, So they have to be psychics?
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Yes and no.
Managers spend much of their time studying the companies they include in your investments.
Its illegal to get information from those companies before the public knows.
(Thats called insider trading, and its why dear Martha Stewart did a stint in prison.)
Advantages and Disadvantages of Mutual Funds
Mutual funds are a done-for-you investment strategy.
A set-it-and-forget-it method for investing.
But with all done-for-you services, you pay a premium for convenience.
That premium shows up masked as the commissions, fees and other charges associated with the fund.
Lets break them down.
Load:A load in mutual fund speak is a sales charge or commission.
For mutual funds made up of mostly stocks, theaverage load is 5.4%.
Thats not taking into consideration 1% on any growth the fund sees in that year.
Also, its a good time to note the management fee is not themanagement expense ratio(MER).
The MER is an overall average of your expenses/fees and will be higher than the management fee.
If you see a 12b-1 fee, thats what youre paying for!
Not all funds have this, but on average, its anannual fee of 0.13%.
These are just the tip of themutual fund fee iceberg.
How to Buy Mutual Funds Without All The Fees
Not all mutual funds are created equal.
There are alternatives that are low-cost, easy to understand, and often yield even better results.
They are the same actively managed mutual funds, but theyre purchased directly from the investment company.
You might recognize names such as Vanguard, Fidelity, T. Rowe Price, and Schwab.
These are mutual fund companies.
you might go straight to their websites, open a brokerage account and start investing in their mutual funds.
Index Funds
Index funds are mutual funds that arent actively managed.
Index funds arent designed to beat the market.
Theyre filled with equities that will mirror the market.
Without all the fees, your principle is able to generate morecompounding earnings.
Because the makeup of index funds rarely changes, most experts recommend having several in your portfolio.
Fee-Only Advisers
Not all investment advisers are created equal, either.
Fee-only financial advisers not the same as fee-based charge an hourly rate or monthly retainer for their services.
They dont take commissions, so they can be impartial to any particular fund.
A much cheaper option isrobo-investing.
Check the options, and choose the fund or funds with the lowest fees.
Jen Smith is a former staff writer at The Penny Hoarder.
(Can you sense my millennial sarcasm there?)
You know which ones were talking about: rent, utilities, cell phone bill, insurance, groceries…