Investing in a mutual fund may seem tremendously overwhelming at first. Instead of choosing just one company and one stock (one price, one ticker, one exchange, etc.), you're suddenly charged with committing to a whole portfolio, choosing an investment approach, monitoring someone else's record, and getting to know a whole new vocabulary.
Before you get mired in those details, you need to decide whether you want some help choosing your funds or whether you'd rather do it on your own. Like most everything in life, both paths have benefits and drawbacks.
Want some help?
Maybe you don't have the time or interest to design your own mutual fund portfolio. Fine! All sorts of financial advisers, from planners to brokers, can help you pull together a financial plan and a basket of funds that can help you achieve your goals.Of course, this service isn't free. If you work with an adviser, you might pay an up-front fee of some sort, perhaps a percentage of your investment money. Or your adviser may forgo a fee and earn a commission by investing your money in what are called load funds. A load, or sales charge, is deducted from your investment when you buy or sell shares, depending on the fee structure. This load is used to compensate the adviser for selling you the fund. (Note that the load does not go to the fund manager; he or she receives another fee, called the management fee, which we've discussed in Funds 104.) Some advisers are fee- and commission-based, which means they'll charge you some combination of the two.
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The drawbacks include cost, of course. There's also the challenge of finding an adviser with whom you work well, someone you can trust to put your interests before his or her own, and who will turn your financial dreams into realities, not nightmares. Further, you want to find an adviser who is willing to take the time to teach you about investing and about what he or she is doing with your portfolio. It's your money, after all, and you need to understand why it's invested the way it is.
Go it alone: Version 1
People with the time and interest to learn about investing and to monitor their own portfolios can invest in funds without the help of an adviser. If you choose to invest on your own, focus on no-load funds, which do not charge any sales commissions. Why pay a commission if you're not getting any investment advice in return?Go-it-alone types can buy funds directly from no-load fund groups (also called fund families) such as Fidelity, Vanguard, and T. Rowe Price. (Fidelity runs load funds, too.) To buy a fund from a fund family, request an application from the fund group by calling its 800 number. You can find these numbers on Morningstar.com's fund data reports. Most fund families provide prospectuses and applications on their Web sites, as well.
Continued: Larger fund families
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