Prev: Figure out stocks vs bonds.
What do I need to know about selecting a mutual fund? There are over seven thousand mutual funds to select from, here is what you need to know before choosing one.
Mutual funds, and other pooled investment funds, put your eggs into many baskets. They typically invest your savings in the stocks or bonds of many different companies, industries, and countries, which significantly reduces risk. For example, suppose:
Mutual funds are managed by professional investment managers. While they do not always meet or beat expectations, they are less likely to make costly investment mistakes.
Fees Seem Small, But Their Effect Is Large
Mutual funds typically charge a percent of your savings invested. Some also have fees for buying and selling shares.
Most expensive are funds in some smaller 401(k) plans, which have higher administrative and marketing costs per participant. A typical fee is over 1.0%.
Fees might seem small. But if you contribute to a 401(k) from age 25 to retirement at age 65, then decide you can safely withdraw 4% including fees out of your savings each year:
You Can Dial “Risk & Return” Up or Down
Experts say your most important investment decision is to strike the proper balance between growth and safety. Using mutual funds, that means picking an Aggressive, Conservative, or “In-between” Fund.
Experts recommend a shift from growth to safety as you age. Target Date Funds (TDFs) do that for you:
Some mutual funds invest your savings in a particular sector, such as an:
Sector funds are less diversified and thus more risky, but allow you to use mutual funds to invest in a particular “sector.”
Here is a video from the Khan Academy that explains more about mutual funds:
Icon works like a 401k plan but without the cost, complexity, and administrative burden. We’ve unified workplace savings, personal retirement, and portfolio management into a single solution.Learn More
Employers pay a small one-time set up fee, and no ongoing plan administration fees.
It takes minutes to set up, no plan design required, no federal filing requirements.
Our portfolios are built with low-cost funds from leading asset managers. Icon acts as a fiduciary to our clients.
We’ll help you every step of the way.LET'S GET STARTED