You know investing is important to your overall future financial outlook, even if you're in debt, but even if you save a sizable share of your paychecks, you won't outpace inflation if you simply park your money in a savings account.
No matter how you spend, what you do with your savings is the difference between having a nice nest egg or having an account that will fully fund your retirement.
But deciding what to invest in is much harder than simply deciding you're going to do it. You need to find an investment vehicle that will bring growth to your funds, especially if you're eyeing a lofty retirement goal. Mutual funds can give you the returns you need to cover your bases.
If you're not quite sure what a mutual fund is, don't worry. We've got you covered — you'll know everything you need to by the end of this article to make a more confident decision about your investment opportunities.
Mutual Funds Explained in Terms You'll Understand
If your eyes start to glaze over whenever someone mentions a financial term you're certain you will never commit to memory, we hear you. You want to make informed decisions, but that doesn't mean you want to feel like you're back in school getting an investment strategy lecture. So let's keep this simple.
A mutual fund is just what it sounds like — it's an investment fund comprised of money from lots of different people, and it covers a mixture of many stocks or bonds, too. You'll be funding one account with a mutual fund, but that money will be funneled into many various investments. Because of this, with a mutual fund you'll be diversified, which is a fancy way of saying you aren't putting all your eggs in one basket. That's always a great thing for long-term investing.
Mutual funds are also professionally managed, whether actively or passively, which is something you'll want in an investment option.
Mutual funds are a popular vehicle for investments, and for smaller investors, they're generally a good choice because they can provide that long-term growth you're seeking while lowering the risk you'd have with other investment opportunities.
So if mutual funds are such a great choice for growing your investments, why would anyone choose anything else? Because they are professionally managed, they do require that investors pay fees and other expenses.
Finding the Best Mutual Fund For You
Whether it's your best friend, your obnoxious coworker, or a relative at your family gatherings, you've likely heard someone talking about an investment that you shouldn't miss out on or a company that you should park all your money in. While that investment might be working out well for the well-meaning person who shared it with you, it could be all wrong for you.
The best mutual fund for you is one you're comfortable with. Because at the end of the day, an investment may make you a lot of money, but if you find you're unable to sleep at night because you're worried about some aspect of it, it might not be right for you.
To help determine which mutual fund is right for you, look at how much money you have to invest right now. You might find a mutual fund you'd love to invest in, but after you do the research you learn you don't have enough money to meet the initial investment requirement. Some funds require that you invest thousands of dollars up front.
Remember those fees we talked about earlier? That fee can vary greatly depending on which mutual fund you go with, so it's an important part of the equation. A fee that's too high will eat into your profits and can mean having tens of thousands less in your account years down the road than you would have with a low-fee mutual fund.
To find a mutual fund that would be a good fit for you, you should look at the fees and the historic returns.
Some of the Best Mutual Funds Right Now
Here are some rock stars in the mutual fund world you may want to consider while searching.
Best Index Funds With Low Fees
Those passively managed mutual funds we mentioned earlier are often referred to as index funds. Index funds carry lower fees than actively managed funds do. That allows you to keep more money in your account to grow because you won't be paying out as much. Here are some low-fee funds.
- Vanguard Total World Stock ETF
- Schwab U.S. Mid-Cap ETF
- Vanguard Total Stock Market ETF
- Vanguard Intermediate-Term Bond ETF
- Fidelity ZERO Large Cap Index Fund
Best Actively Managed Lifecycle Funds
Lifecycle funds have really taken off in popularity in the past 10 years or so. They cover everyone — those who start saving young and those just a few years from retirement. You'll just pick the decade you intend to retire, and that fund will have a mix of stocks and bonds predetermined. So if you pick a 2040 fund, for instance, as your date comes closer, the allocation of bonds will increase to expose you to less risk.
- Dodge & Cox Stock
- Fidelity Total Bond Fund
- T. Rowe Price Blue Chip Growth
- Primecap Odyssey Growth
- Schwab Target Funds
Top Performing Mutual Funds of 2018
While having a great performance year in 2018 doesn't guarantee a fund will do well in 2019, it can be comforting to pick a fund with a proven track record. These all did well last year.
- FundX Tactical Upgrader
- Fidelity Series Growth Opportunities
- Fidelity Advisor Growth Opportunities M
- Voya Securitized Credit P Fund
- Meeder Conservative Allocation Fund
Keep Forging Ahead
Whichever mutual fund you choose, keep adding money to it when you can. Resist the urge to tap into that money if you're saving for retirement, and you'll be better off than many of your peers.
Keep your eyes on the long-term prize, revisit your goals and savings level every once in a while, and you'll eventually get to where you're heading.