Mutual funds are one of the most popular ways for Americans to invest—and for good reason. Unlike other investment vehicles, mutual funds offer diversification, professional management and convenience all under one roof.
The concept of a mutual fund is simple. A company that makes investments in other companies offers you shares in their mutual fund. Your money is then pooled with the money of other investors and the mutual fund buys a diversified portfolio of stocks or bonds of other companies.
The investment manager, or portfolio manager, is responsible for the decisions to buy, sell, and hold the different investments of the fund. There are many mutual funds available, so think about what type of fund matches your investment goals as well as how much risk you’re willing to take. Even within the general categories of stock and bond funds, there are higher risk and lower risk funds.
After choosing a type of fund you want, look for a fund that will perform well. Of course, there are no guarantees because past performance can never be a promise of future results. But, examine the performance track record of the funds you are considering. Be sure to look at both the long-term and short-term results. And, since the results come from the decisions the portfolio manager makes, be sure to check whether the statistics you are reviewing are the results of the current manager.
Another area to consider is the fund’s level of expenses since the fund will incur expenses in its daily operations. This could include fees for asset management, accounting, reporting, and other activities. The fees and expenses reduce the profits, or returns, to the mutual fund shareholders, so it’s vital that the fund you choose has a reasonable level of expenditures.
Also, consider whether you want to pay a commission to buy your shares in the fund. “Load” funds charge a commission and “no-load” funds don’t. Many “load” and “no-load” funds have identical objectives and similar track records. Any commission you pay reduces the funds working for you. If you elect to go the “load” route, you should expect your broker or financial adviser to provide you with help and ongoing counseling to justify the commission. If you want to do the homework yourself, using a “no-load” fund may be right for you.
Mutual funds offer many conveniences. However, there are risks. Be sure to do your homework and read the mutual fund prospectus carefully before making any decision. If you’d like to receive investment counseling through Liberty Savings, we partner with trusted experts in the field. Check out the offerings online, or stop by any branch to learn more about the benefits you can be receiving as a credit union member.