Two Approaches When You Decide to Buy Mutual Funds

Google+ Pinterest LinkedIn Tumblr +

The decision to buy mutual funds instead of stocks kind of goes with the “don’t put all your eggs in one basket” style of thinking. Instead of hitching your wagon to just one or two kinds of stock, you invest instead in dozens to hedge your bets. While this is a great way to buy yourself an extra layer of protection from the unreliability of stock investments, before you can actually buy mutual fundsyour decision does saddle you with the responsibility of finding an investment approach, finding all kinds of new stocks to invest in, and monitoring lots of stocks all at once to try to determine how well you are doing.

There are two kinds of people who invest in mutual funds – people who roll their own so to speak – the ones who look up the stocks in the investment publications and monitor and manage them every day; and then there are the people who will hire their own investment advisor, and pay for the privilege. An advisor usually charges a flat upfront fee; sometimes they can work on commission by investing your money in load funds. That gives them a fee each time you buy or sell. The advantages of working with an advisor are pretty irresistible- you have expert counsel in your financial decisions and you never have no paperwork to worry about. And of course, having a third party involved, helps you be more financially responsible with your investments. The problem with this approach apart from what it costs is that advisers don’t really like to deal with small accounts. You may not actually find that you get as much care and advice as you would like.

The other option is to go solo without a wing man. This is a high maintenance method, but it does come with an added measure of satisfaction for all the work you put into your investment for the fruits it bears. To buy mutual funds on your own or rather to buy the stocks that make up your mutual funds on your own, go with no-load funds. Buy anything else and you’ll be looking at paying sales commissions on every tweak you make in your holdings. Vanguard and T. Rowe Price among others are great no-load fund groups for you to pick from. Just call the company’s toll-free number and ask for an application form.

It’s best to buy mutual funds from more than one no load fund group. It helps you diversify your investments a lot more for safety – to spread out the risk as it were. Janus Funds for instance with only invest in large business houses; you miss out on all the action with the smaller players that could potentially be a lot more profitable to you. There is another way to buy mutual funds yourself and two in addition – you go to an investment supermarket. This allows you to pick from hundreds of funds to park your investments in. Not only do you get to do this going through a fund supermarket like Charles Schwab, you get all your investment statements on one form. Of course there are fees involved here, a healthy one quarter of one percent. But for the peace of mind, it could be worth it.


About Author

Leave A Reply