Millions of Americans buy mutual funds by simply choosing them as an investment option in their 401k plan. How do people go about investing in mutual funds outside of their retirement plan at work?
There are at least three popular ways average people buy mutual funds, each with its advantages and disadvantages. Where to invest depends to a large extent on how involved you are willing to get in the process. Some people want to learn how to invest, and others want to rely on someone else to handle their investments.
Let’s look at three popular ways to buy mutual funds, starting with how to invest if you want to rely on someone else.
If you want to buy mutual funds with a minimum of time and effort on your part, contact an investment professional. Even though these folks usually call and solicit you, you can call them. Look in the phone book under financial planners, stock brokers, or investment services. Some life insurance agents sell mutual funds as well. Perhaps your local bank or credit union has a representative on board who sells mutual funds.
The advantage of this approach is that someone helps you make financial decisions, and deals with the details, including the paper work. The disadvantage is that you will pay sales charges (loads) and/or other fees that you can otherwise avoid. Rather than choosing a professional at random, I suggest you ask investors you know who they deal with, and how they feel about them. Needless to say, some professionals in the investing business are better than others at their job.
A second popular way to buy mutual funds is the “supermarket” approach. For example, by opening a brokerage account with a major discount broker, you should have access to hundreds of funds to buy. To get started, go to your computer and search for “discount brokers”. Once you have an account with money in it, to buy mutual funds you just click to buy.
The advantage here is the wide selection of funds available from several different fund families. You should be able to buy funds without sales charges, but there will be transaction fees, which are often quite reasonable. On the other hand, this is basically a self-serve supermarket. If you want advice on how to invest or where to invest your money, service is limited.
The third approach is to go with a no-load fund family like Vanguard, Fidelity, or T. Rowe Price. Search “no-load funds” on your computer to find a list of them. These investor-friendly investment companies have toll-free numbers you can call for assistance in opening up a mutual fund account.
There are numerous advantages to this third approach to investing in mutual funds. You deal directly with the mutual fund company, there are no middlemen. You can talk to their representatives toll-free and ask questions without sales pressure. They are used to talking to average folks who are not rich, and who don’t speak the language of Wall Street.
The major no-load fund families offer a broad variety of mutual funds that have no sales charges, and often have some of the lowest yearly expenses in the industry. This makes their no-load funds a low-cost way to buy and hold mutual funds. Plus, these mutual fund companies offer investor assistance and services that are free of extra charges and fees.
When you invest with a no-load fund family, you can buy or sell mutual funds on your computer or toll-free on the telephone without paying any sales charges or transaction fees.
The disadvantage here is that you make your own investment decisions. You decide how to invest and where to invest your money in the various mutual funds they offer. Plus, you may be required to fill out your own forms, like the application required to open an account.
You can save thousands by buying no-load funds directly from a no-load fund company. This is the best way to go IF you are up to speed on how to invest and investment basics. If you are still clueless, there are plenty of articles available to help you learn about investing and mutual funds.
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