5 Easy Tips for Buying Mutual Funds

Simple Steps to Investing Success

buy mutual funds online
Learn how to buy mutual funds. Getty Images

Mutual funds have the unique distinction of being accessible and easy enough for beginners but attractive and versatile enough for professionals. Whether you are a beginning investor or an expert, you'll only need to know 5 easy tips for buying mutual funds.

  1. Decide: Do It Yourself or Use an Advisor: You don't need to be an investment advisor or stockbroker to buy mutual funds, especially if your investment needs are simple and you enjoy doing things for your self. However, you may not have any interest in mutual fund research or in doing any of the follow-up work, such as monitoring performance, reassessing goals and buying more mutual funds. If you do it yourself, you may want to open an account at a good no-load mutual fund company, such as Vanguard, Fidelity or T. Rowe Price or you may want to use a discount broker, such as Charles Schwab or Scottrade.
  1. Learn How to Build a Portfolio of Mutual Funds: Complex plans and hours of preparation are not necessary for buying mutual funds but you'll need to have some form of a plan, purpose or goal in mind before buying the fund. At a minimum, you'll need to assess your risk tolerance--how you feel about risk and investing--and you'll need to know the basics of asset allocation--how to determine a good mix of mutual fund types for your investing or savings goal.
  2. Choose Mutual Fund Type or Category: This is where many investors, beginners and professionals alike, tend to get lost or disinterested in the mutual fund selection process. Depending upon your needs, or if you are just starting out with your first mutual fund, you may want to keep things simple with an S&P 500 Index fund, a target-date retirement fund or a balanced fund. Once your portfolio grows larger and you learn the nuances of portfolio strategies you will need to diversify by spreading risk over several fund categories.
  1. Learn How to Analyze a Mutual Fund: There's more to a mutual fund than historic performance. There are other important factors, such as turnover ratio, expense ratio, manager tenure, and tax efficiency to analyze and compare before buying a mutual fund. If you have already decided to use index funds, which can be a wise choice for most investors, the analysis process is almost unnecessary. In this case, you may want to open an account at Vanguard Investments, where you'll find the best overall selection of index funds and ETFs available in one fund place.
  1. Use a Mutual Fund Research Tool There are thousands of mutual funds and Exchange Traded Funds (ETFs) in the universe of investments. Once you know which factors are most important to you, an online fund research tool can quickly help you find the fund that best fits your needs.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

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