Buying Mutual Funds

There are literally thousands of mutual funds to choose from, and new funds are introduced just about every day. It may seem a rather daunting task even to choose what type of fund to invest in, much less a particular fund! But buying mutual funds really isn't that difficult.

The first step is choosing the type of fund you want to invest in. Once you have made that determination, you need to take a look at the rankings to determine a few funds that have good potential. From there, you should take a look at each fund's prospectus to determine whether or not the fund matches your investment goals.

You might want to invest in more than one mutual fund to spread your risk around a bit. If you choose to do this, you shouldn't buy more than one fund with very similar investment objectives. If you buy two growth funds, for example, you may end up with funds that are extremely similar, and you'll end up paying two fees for the same basic portfolio. What you might want to do is choose one growth fund and one income fund, so that you are invested in both stocks and bonds.

Also, it is not a good idea to buy multiple funds that have a large number of their major investments in the same companies, because if one fund performs poorly, the other will, as well. One of the big advantages of purchasing shares in multiple funds is lessening risk through diversification, and that advantage is lost if you buy shares in funds with extremely similar portfolios. This fits with the rule of not buying funds with similar investment objectives, because most funds have similar portfolios.

When buying shares in a mutual fund, you can time your purchase just like you might time your purchase when investing in stocks or bonds directly. It is extremely difficult to do this, so you may want to just skip this. If you're interested in doing this, though, you might choose to buy during a time when the markets have fallen slightly. In reality, though, unless you are investing a rather large amount, the money you save won't be that great.