Are you thinking of investing in mutual funds? Learn more about the best of them and how to make the right investment choice with this guide!
Mutual funds are a popular investment vehicle for many individuals looking to grow their wealth over time. These funds pool money from many investors and use that money to purchase a diversified portfolio of stocks, bonds, or other assets.
But with so many mutual funds available, it can be overwhelming to choose the right one for you. In this guide, we’ll cover everything you need to know about mutual funds, from the basics to selecting the best fund for your portfolio.
What are Best Mutual Funds?
Mutual funds are a type of pooled investment that allows investors to buy shares of a professionally managed portfolio of stocks, bonds, or other securities. When you invest in a mutual fund, your money is combined with other investors’ money and used to purchase a diversified range of financial instruments. This enables investors to get exposure to a wide range of different investment types without having to research and select individual investments themselves.
It’s not possible to say which mutual funds are the “best” as it depends on various factors such as your investment goals, risk tolerance, and investment horizon. However, some of the factors to consider when selecting mutual funds include:
- Investment style: Different mutual funds have different investment styles, such as growth, value, or income. It’s important to select a fund that aligns with your investment goals and risk tolerance.
- Expense Ratio: The expense ratio is the annual fee charged by the mutual fund for managing your money. Lower expense ratios are generally better as they leave more money in your pocket.
- Performance History: While past performance doesn’t guarantee future results, it’s important to review a mutual fund’s performance history to see how it has performed over time compared to its benchmark index.
- Manager Tenure: The experience of the mutual fund manager can play a role in the fund’s performance. Look for mutual funds with experienced managers who have a track record of success.
- Diversification: Diversification is important in managing risk, so look for mutual funds that invest in a variety of assets, such as stocks, bonds, and other securities.
Some popular mutual fund families that are well-regarded in the industry include Vanguard, Fidelity, and BlackRock, but it’s important to do your own research and select mutual funds that align with your individual investment goals and risk tolerance. It’s also recommended to consult with a financial advisor who can help guide you in selecting the right mutual funds for your portfolio.
What Types of Mutual Funds can I Invest in?
Investors have a huge selection when it comes to investing in mutual funds. Common types of mutual funds include index funds, bond funds, target-date funds, and money market funds. Index funds are designed to track a particular stock markets index such as the S&P 500 or Dow Jones Industrial Average (DJIA).
Bond funds invest in various types of bonds such as government securities and corporate debt. Target-date funds automatically adjust their asset mix over time as the investor gets closer to retirement age, while money market funds invest exclusively in short-term debt instruments. With so many options available, careful research is necessary to make sure you select the best type of mutual fund for your investment goals.
- Equity funds – Invest in stocks of companies with the potential for long-term growth.
- Bond funds – Invest in fixed-income securities, such as corporate or government bonds.
- Money market funds – Invests in short-term, low-risk securities, such as government bonds and commercial paper.
- Balanced funds – Invest in a mix of stocks and bonds to provide both growth potential and income.
- Index funds – Invest in a portfolio of stocks or bonds that mirror a specific market index, such as the S&P 500.
- Sector funds – Focus on a specific industry or sector, such as technology or healthcare.
- International funds – Invest in stocks or bonds of companies outside of your home country.
- Specialty funds – Focus on a specific investment theme, such as socially responsible investing or real estate.
- Exchange-traded funds (ETFs) – Similar to index funds, ETFs trade like a stock and offer exposure to a specific market index or investment theme.
It’s important to note that each type of mutual fund has different risk and return characteristics, so it’s crucial to understand your own investment goals and risk tolerance before investing in any particular fund.
Best-Performing U.S. Equity Mutual Funds
We looked at U.S. equities funds available to new investors with low expenses (expense ratios of 1% or less) and minimum investment requirements of $3,000 or less to identify the top mutual funds based on five-year performance.
|Ticker||Fund Name||5-Year Return|
|PAXLX||Impax Large Cap Fund Individual Investor||10.97%|
|VDIGX||Vanguard Dividend Growth Inv||10.83%|
|SSAQX||State Street US Core Equity Fund||10.63%|
|PRBLX||Parnassus Core Equity Investor||10.55%|
|JEQIX||Johnson Equity Income||10.53%|
|PRDGX||T. Rowe Price Dividend Growth||10.51%|
|STSEX||BlackRock Exchange BlackRock||10.16%|
|GSLLX||Goldman Sachs Flexible Cap Investor||10.08%|
|GSPTX||Goldman Sachs Large Cap Core Inv||9.76%|
Top Performing Low-Fee Best Mutual Funds
|Top Fund||2022 Performance||Historical Performance |
(annual over 5 years)
|Massachusetts Investors Growth Stock Fund (MIGNX)||19.0%||12.1%||0.37%|
|Shelton Nasdaq-100 Index Direct (NASDX)||32.7%||11.9%||0.50%|
|VALIC Company I Nasdaq 100 Index (VCNIX)||32.8%||11.8%||0.50%|
|Voya Russell Large Cap Growth Index Fund (IRLNX)||30.0%||11.1%||0.43%|
|Vanguard Dividend Growth (VDIGX)||4.9%||10.5%||0.27%|
|Fidelity SAI US Quality Index (FUQIX)||18.1%||9.9%||0.10%|
|Schwab Fundamental U.S. Large Company Index Fund (SFLNX)||6.9%||9.8%||0.25%|
|TIAA-CREF Quant Small/Mid-Cap Equity Fund (TSMNX)||16.5%||9.6%||0.48%|
How do I Choose the Right Mutual Fund?
Choosing the right mutual fund for you starts with understanding your own personal financial needs and goals. Begin by determining how much risk you are willing to take on, how long of an investment period you’d like to make, and what type of returns you are expecting.
Once you have your initial criteria set, review each prospectus carefully and compare the various costs associated with the different funds. There may be annual fees, commissions, minimum investments, or other factors that can influence your decision. Finally, consider any special features or benefits such as professional management or automatic investing solutions.
- Performance – Look at the fund’s past performance and compare it to similar funds.
- Fees – Mutual funds charge fees for management and other expenses. Consider the fees when choosing a fund.
- Investment style – Some funds focus on specific investment styles, such as growth or value.
- Risk – Consider the fund’s risk level and whether it aligns with your risk tolerance.
What is the Risk Involved with Investing in Mutual Funds?
Mutual funds can be both an investment opportunity and a risk. The level of risk is determined by the individual fund’s objectives, fees, and performance history, among other factors. Generally speaking, lower-risk funds will produce smaller returns but are less volatile than higher-risk funds which may have higher potential rewards but also potentially greater risks.
All investments carry some level of risk, including mutual funds. The level of risk depends on the type of fund, the investments it holds, and market conditions. However, investing in mutual funds can offer diversification, which can help mitigate some of the risks. Do your research and understand the different types of mutual funds before committing to any one fund.
How much Money do I need to Start Investing in Mutual Funds?
Investing in mutual funds depends on the fund itself and the broker or financial institution that provides it. Some funds offer prices as low as a few hundred dollars, while others may require minimums of thousands of dollars. Your financial advisor or broker can help you identify the funds that best suit your investment goals and provide advice on how much capital is necessary to begin investing in them.
The amount of money you need to start investing in mutual funds varies depending on the fund. Some funds require a minimum investment of $1,000 or more, while others have no minimum investment requirement. Many mutual fund companies also offer investment plans for beginners, which allow investors to start investing small amounts of money.
Mutual Funds Investment Plans for Beginners
Mutual fund investment plans for beginners are an excellent option for those who are new to investing and want to start small. With these plans, investors can start investing in mutual funds with as little as $50 per month, making it accessible for anyone to start investing.
One of the benefits of mutual fund investment plans is the convenience and automation they offer. Investors can set up automatic investments, so they don’t have to worry about manually investing each month. This also helps to develop consistent saving and investing habits, which is crucial for long-term financial success.
Another advantage of mutual fund investment plans is that they allow investors to diversify their portfolios easily. By investing in a range of mutual funds, investors can spread their risk and potentially reduce the impact of market volatility on their portfolios.
When choosing a mutual fund investment plan, it’s essential to do your research and select a plan that aligns with your financial goals and risk tolerance. Many mutual fund companies offer investment plans with various investment objectives, such as growth, income, or a blend of both.
It’s also important to consider the fees associated with mutual funds investment plans, such as expense ratios and sales charges. These fees can impact your investment returns over time, so it’s crucial to understand and compare them before choosing a plan.
Mutual fund investment plans for beginners are an excellent way to start investing in mutual funds with a small amount of money. With automated investments, diversification, and a range of investment objectives, these plans can help investors achieve their long-term financial goals. However, it’s crucial to do your research, understand the fees, and choose a plan that aligns with your financial objectives and risk tolerance.
Advantages of Mutual Funds
Mutual funds offer several advantages to investors, including:
- Diversification: Mutual funds invest in a variety of assets, such as stocks, bonds, and other securities. This diversification helps to spread risk across multiple investments and can help reduce the impact of a single investment performing poorly.
- Professional Management: Mutual funds are managed by professional fund managers who have expertise in investing. These managers research and analyze securities to make investment decisions for the fund.
- Accessibility: Mutual funds are widely available and accessible to all investors, regardless of the amount of money they have to invest.
- Affordability: Mutual funds allow investors to pool their money together, which can help reduce transaction costs and make it more affordable to invest in a diversified portfolio of securities.
- Liquidity: Mutual funds can be bought and sold on a daily basis, making them a liquid investment that can be easily converted to cash.
- Transparency: Mutual funds are required to disclose their holdings and other important information to investors on a regular basis, which provides transparency and helps investors make informed investment decisions.
Overall, mutual funds offer a convenient and affordable way for investors to access professional management, diversification, and liquidity, making them a popular investment choice for many.
Disadvantages of Mutual Funds
While mutual funds offer many advantages, there are also some potential disadvantages to consider, including:
- Fees and Expenses: Mutual funds can come with high fees and expenses, such as management fees, transaction costs, and other charges. These fees can eat into investment returns over time.
- Lack of Control: When you invest in a mutual fund, you are relying on the fund manager to make investment decisions on your behalf. This can limit your ability to make individual investment decisions and control your portfolio.
- Tax Implications: Mutual funds can generate capital gains and income, which can result in tax liabilities for investors. This can be a concern for investors in higher tax brackets.
- Underperformance: While mutual funds are managed by professional fund managers, there is no guarantee that they will outperform the market or their benchmark index. Poor performance can result in lower returns for investors.
- Hidden Risks: Mutual funds can invest in a variety of assets, some of which may be riskier than others. It is important for investors to understand the underlying holdings of a mutual fund and the associated risks.
- Over-Diversification: While diversification is a key benefit of mutual funds, it is possible for investors to become over-diversified, which can limit potential returns.
Overall, while mutual funds offer many advantages, it is important to carefully consider the potential drawbacks before investing, in order to make an informed decision that aligns with your investment goals and risk tolerance.
Which mutual fund should a beginner invest in?
For beginners, it’s recommended to invest in a diversified mutual fund with low fees and a history of strong performance. A balanced fund or an index fund are good options for beginners.
Is mutual funds better than FD?
Mutual funds offer the potential for higher returns than fixed deposits (FDs), but also come with higher risk. FDs are considered low-risk investments but offer lower returns than mutual funds.
Which type of mutual fund is best for beginners?
For beginners, a balanced fund or an index fund are good options as they provide a diversified portfolio and have low fees.
What are the 4 types of mutual funds?
The four main types of mutual funds are equity funds, fixed-income funds, balanced funds, and money market funds.
How long should you stay invested in mutual funds?
It’s generally recommended to stay invested in mutual funds for at least three to five years to allow for potential growth and to ride out any short-term market volatility.
Mutual funds can be a great way to invest in a diversified portfolio of stocks, bonds, and other assets. When selecting a mutual fund, it’s important to consider your investment objectives, risk tolerance, and fees. By doing your research and choosing the right mutual fund, you can start building a strong investment portfolio that can help you achieve your financial goals.