For those who are new to investing, it can be overwhelming to look at all of your options and decide which ones are right for you. However, investing in mutual funds can make investing a lot simpler and safer for a first-time investor or anyone who is looking for an easy way to diversify their portfolio.
What Is a Mutual Fund?
A mutual fund is an investment made by a group of people instead of just one person. The fund then invests money into a group of companies based on sector, market type or index. You get to choose which type of fund that you want to invest in and how much you are willing to put into the fund. While some funds have a minimum buy in amount, shares in certain funds can be purchased for as little as $100.
Which Fund Is Best to Buy?
Determining which fund is right for you takes research on your part. Before purchasing shares in any fund, you want to know how well it has performed in the last 52 weeks as well as in the past three or five years. This gives you a snapshot of how well it has performed recently as well as how it has fared through the ups and downs of the market over a period of several years. You also want to read the prospectus on any fund to find out who manages it, where the money goes and any fees associated with the fund. If you have a TFSA account, you can benefit from ING’s Tax-Free Mutual Fund account.
Index Funds Are Great for New Investors
An index fund is a fund that invests in an entire index. Typically, an index fund aims to keep pace with or outperform the S&P 500. However, other index funds may try to track the progress of a foreign index or a smaller exchange in the United States. Fees are typically lower as there is less to manage and it is more likely that an investor will see his or her money back.
How Aggressive Do You Want to Be?
There are a variety of mutual funds that are aimed at different types of investors. A growth fund aims to gain as much value as possible for those who have more than 10 years to keep their money in the market. While the fund could trend up and down significantly over a period of weeks or months, it will typically yield the best return over a period of several years or decades. For those who don’t want to risk their money, a fund aimed at capital preservation is best for you. Capital preservation funds tend to invest in large American corporations that offer a steady if unspectacular return.
For those who are extremely conservative, you may want to consider a GIC – a Guaranteed Investment Certificate. This has rates similar to Government rates but is extremely safe. With a GIC, you are Guaranteed a certain % of return every year, although many consider this to be too little.
Mutual funds are a solid investment opportunity for those who are just getting into the market or want a little more diversification. A mutual fund can also offer flexibility as you can buy or sell your shares whenever it is convenient for you to do so. To start investing, you can use an online broker or talk to a financial professional today.