How To Invest In Mutual Funds

    Published: 06-16-2009
    Views: 4,438
    Motley Fool Financial Analyst, Matthew Argersinger, provides tips and information on how to invest in mutual funds.

    Matthew Argersinger: Hi! I'm Matthew Argersinger. To answer the question, should you invest in mutual funds, well first the very question is should you be investing? And the answer is absolutely yes.

    If it's not mutual funds, stocks, bonds, we should be investing to save for the future all the time. Mutual funds are really interesting class of investing. A lot of people are kind of shy away from investing in individual stocks because they can be volatile and pretty risky, mutual funds usually give you a more diversified set of assets and there are all kinds of mutual funds, there are index funds, funds that are usually low-cost and just try to track market indexes like the SMP 500, there are ETFs, exchange traded funds which try to model a certain industry or a certain strategy, those are also fairly cheap and give investors some chances to diversify in places they might not be familiar with and then there are actively managed mutual funds which I think is more what we think of -- when we think of mutual funds these are managed by Money Managers who are making active portfolio decisions, they are buying and selling within the mutual fund, usually several dozen of stocks at least in the fund.

    You are going to pay a higher expense for those, you are usually going to pay somewhere between 1 and 1.

    5 percent of assets. So if you invest $10000 in a mutual fund, every year you are paying about 1% to 1.

    5% of that to the money managers as a cost of investing in the fund, if you invest in index funds or ETFs, that's going to be a lot cheaper, it's going to be say 25 basis points or .

    25% or 50 basis points, 0.

    5%.

    So it just depends on what you are going for. Are you going for investing in an active manager who is actively trying to perform and beat a benchmark, or you are just trying go match a benchmark like an SMP 500 index or maybe investing in a Brazil ETF, or a China ETF which just try some mirror the indexes or benchmarks within those countries. So you have all kinds of options with mutual funds. Bottomline mutual funds can be a great investment, you always want to be investing, they are a great option especially for those investors who don't have a lot of time and it would rather give their money into a diversified fund that's actually managed by someone else. So there you have it, investing in mutual funds.

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