Considering an investment in a mutual fund? Mutual funds are a favorite for many investors. These are especially great options for newer investors who are just learning the ropes of the investment world. Even experienced investors, however, can benefit from having mutual funds in their portfolio.
So What is a Mutual Fund?
These funds are pretty simple concepts, a mutual fund is basically a pool of money that a money manager pools together to then invest in stocks, or another type of financial instrument. So basically a mutual fund’s definition could be thought of as a pool of money managed by a professional money manager who then invests the money in various assets.
With a money mutual fund, a money manager will manage the fund and make investments. The manager is generally paid a fee, and also a bonus for his or her performance. The money manager is usually a proven investment expert and high performer in the industry. So even after paying fees and bonuses to the manager, the returns from top performing mutual funds will often be better than market returns, and the returns the investor would have secured on his or her own.
Picking the Mutual Funds to Invest in
If you are looking to invest in mutual funds, there are many options. In fact, the number of options for a newbie investor can be overwhelming. How can you choose from all of these options? One way is to look at morningstar ratings. These ratings take a comprehensive look at funds and their past performance. Funds are rated on a scale of 1 to 5. There are also ratings for gold, silver, bronze (neutral), and negative. Obviously, gold is the best, followed by silver, than bronze. Fidelity mutual funds are among the best mutual funds, so give them a close look.
ETFs vs Mutual Funds and What You Need To Know
Besides mutual funds, there are also exchange traded funds (ETFs). So what’s the difference with etf vs mutual funds? An ETF is pegged directly to an index, such as the S&P 500. This means your fund’s performance will be linked directly in line with the index being tracked. If the S&P 500 rises by 5%, your ETF should rise by about 5%.
Benefits of ETF over Mutual Funds
What’s the benefit of a ETF? For one, you can spend less time conducting research in regards to individual funds. You don’t have to spend as much time worrying about how one ETF will perform versus another, but instead can spend time figuring out how one index will perform versus another. Maybe the global economy is on the verge of a tech boom? If so a NASDAQ ETF could be a great investment.
The biggest benefit of an ETF, however, is arguably the lower fees. You don’t have to hire a professional money manager to run an ETF because the ETF is pegged directly to the index. Once the ETF is set up it is very easy to manage because analysts aren’t trying to pick high and low performing stocks, and all that other stuff.
Lower fees mean more money goes directly to the investors. There are several ETF options out there, of course, and one easy way to consider them is to look at the fees involved. There are still a lot of options out there when it comes to ETF funds, so you should definitely take your time and look around.
In fact, there are also tons upon tons of options when it comes to both mutual funds and ETFs, so make sure you take a moment to consider all of them. Doing a little bit of extra homework right now and studying up on individual funds before you commit cash could end up leading to huge gains in the future.