Mutual funds are one of the most popular investment choices some people use when seeking to build a diversified portfolio. Find out why and how to pick mutual funds that align with your savings goals.
Many people think they don’t have enough money to invest. But it is possible to create a diversified portfolio without breaking the budget. One of the most popular ways is with mutual funds. According to the Investment Company Institute, over 44% of U.S. households owned mutual funds as of mid-2017. Of those, half had income of less than $100,000, and 37% were headed by individuals under the age of 35.
And if you’re participating in your employer’s retirement plan, you’re probably already investing in mutual funds. Most plans offer a variety of them as part of their investment lineups.
Let’s take a closer look at mutual fund investments and start to figure out which ones may be right for you.
Two key reasons people invest in mutual funds are affordability and purchasing power. The minimum investment amount can potentially be as low as $50 depending on the policies of the fund provider. For example, you may have to set up automatic monthly purchases to get the lower minimum. In exchange for this investment, you can gain exposure to numerous stocks and other securities. It can be difficult to get this same type of exposure buying individual stocks with only $50 to invest.
On top of that, mutual fund investments generally offer:
If you can think it, there’s probably a mutual fund for it. According to mutualfunds.com, there were more than 8,000 mutual funds in 2017. Most fall into one of these broad categories:
With so many mutual fund investments to choose from, it may be difficult to know which ones are right for you. To help narrow down your choices, look for ones that reflect your:
Based on your answers to these questions, you can determine which type(s) of mutual fund may be best suited to your goals, objectives, and risk tolerance. For example, if you’re seeking growth and can handle a moderate level of risk as you invest for your child’s college education, you might choose a stock fund that invests in large, established companies. If you’re hoping to put a down payment on a home within the next five years, you might want a balanced fund that aims to provide some downside protection.
From there, you’ll want to research and compare specific funds within that category. Some factors to consider include:
All of this information and more is available on the investment company’s website and in the mutual fund’s prospectus, which you should carefully read before investing. And as you conduct your research, make sure you’re comparing like funds such as bond fund to bond fund.
You may also want seek information from other sources. TD Ameritrade offers tools and resources to help facilitate your mutual fund research. One is the TD Ameritrade Premier List, which provides top picks* by independent investment professionals at Morningstar. Consider using the list to help evaluate a single fund or to help you build a diversified portfolio with multiple funds.
Another resource is the TD Ameritrade Mutual Fund Screener, which can help you find funds that match your goals and investment preferences. With this tool, you can create and save your own screens or use predefined ones.
Mutual funds offer an affordable way for new and experienced investors to get exposure to the market, build a diversified portfolio, and manage risk. The key is to do your homework, which includes reading the prospectuses, to find funds that fit your goals, investment objective, risk tolerance, and time horizon. To learn more, watch Investing Basics-Mutual Funds.
TD Ameritrade tools and services can help you decide.
Carefully consider the investment objectives, risks, charges and expenses before investing. A prospectus, obtained by calling 800-669-3900, contains this and other important information about an investment company. Read carefully before investing.
Asset allocation and diversification do not eliminate the risk of experiencing investment losses.
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Mutual funds are subject to market, exchange rate, political, credit, interest rate and prepayment risks, which vary depending on the type of mutual fund. Fund purchases may be subject to investment minimums, eligibility, and other restrictions, as well as charges and expenses. Certain money market funds may impose liquidity fees and redemption gates in certain circumstances.
Investing in bond funds has principal risks associated with changes in interest rates and the risk of default, when an issuer will be unable to make income or principal payments.
Investing in equity (stock) funds has principal risks associated with changes in company valuations (total worth) and related stock market performance.
A mutual fund is not FDIC-insured, may lose value and is not guaranteed by a bank or other financial institution.
*The Premier List represents what Morningstar believes to be the ‘top picks’ funds in each category, from the universe of no-load funds with minimums less than $10,000 and open to new investors available on TD Ameritrade’s platform.
Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. The mutual funds selected by Morningstar Investment Management for the Premier List have been derived from a universe of mutual funds made available through TD Ameritrade, a universe which does not include all mutual funds available in the marketplace. Both the universe of mutual funds defined by TD Ameritrade and the Premier List are subject to change at any time and without notice. Particular mutual funds on the Premier List may not be appropriate investments for you under your circumstances, and there may be other mutual funds or investment options offered by TD Ameritrade that are more suitable. Morningstar Investment Management may have more favorable opinions of certain mutual funds which are not included in the universe of mutual funds made available through TD Ameritrade. The Morningstar selections were based on qualitative factors and quantitative analysis conducted by Morningstar Investment Management. The information, data and opinions contained herein include proprietary information of Morningstar Investment Management and may not be copied or redistributed for any purpose. Morningstar Investment Management does not warrant this information to be accurate, complete or timely. Morningstar Investment Management is not responsible for any damages or losses arising from the use of this information. Past performance is no guarantee of future results. The Morningstar name and logo are registered marks of Morningstar, Inc. Morningstar Investment Management is not affiliated with TD Ameritrade.
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