What Kind of Mutual Fund Is Right for Me?

Choosing the right mutual fund is an important part of retirement planning.

Mutual funds can be a good addition to any retirement investment portfolio, but there are many different types of funds to choose from and they are not a "one size fits all" type of investment. If you are looking to invest in a mutual fund, it's important to do your homework on the funds available, figure out what your specific goals are with your investment, and make an educated decision based on those factors.

History

While there are various examples in history of pooling together income to fund multiple investments and splitting the profits, the birth of the modern mutual fund came in 1924 in the United States, according to Investopedia, and went public for the first time in 1928. However they did not enjoy wide spread popularity until the 1980s as mutual funds were seen as a "safer" way of investing in the stock market while still enjoying the potential for high returns.

Benefits

There are several benefits to being invested in a good mutual fund. One is that the spread of stocks makes it harder for one bad stock to hurt or damage a portfolio. In addition, still being in the stock market gives a better chance for high returns than CDs, savings accounts, bonds, or other "safe" investments that don't traditionally return well.

Risk Level

Risk level is a major factor in determining which mutual fund is right for you. There are mutual funds designed to be risk takers, others that bet heavily on just one sector of the market (such as technology or banking), and then there are well balanced mutual funds that are designed to be safer and more stable. Your personal appetite for risk will go a long way in determining which mutual fund is right for you.

Load Funds vs. No Load Funds

You will want to know the difference between "load funds" and "no load funds." Load funds are mutual funds that are bought from a broker who can offer personal investment guidance, but at a commission cost. No load funds are mutual funds that are bought directly from a fund, so while there are basic costs, there are no additional commission costs from having a broker. The argument is that load funds perform better and are worth the extra money, but that has not consistently held up in the actual performance markets.

Warnings

While mutual funds are considered a "safer" investment, they are not the same as bonds, CDs, or money markets where the funds are guaranteed. There is a chance that money can actually be lost from a mutual fund -- just ask people who invested heavily in tech-based mutual funds in the late 1990s or people who were invested in bank and finance heavy mutual funds in the late 2000s. While mutual funds can be safer than investing in individual stocks, this is no guarantee.

References

• The Motley Fool: How to Pick the Best Mutual Funds
• Lincoln Financial Activities: Is a Mutual Fund Right for Me?
• Consumer Affairs: Picking the Right Mutual Funds
• Investopedia: A Brief History of the Mutual Fund