Mutual Funds
A mutual fund lets you buy a basket of investments in one click. Instead of picking individual stocks or bonds, you buy shares of a fund that owns many of them for you.
The Big Idea: Diversification
If you buy one stock and that company struggles, your whole investment can suffer. A mutual fund spreads your money across many investments, so one bad performer usually does not matter much.
Why this helps:
Buying hundreds of stocks one by one is expensive and complicated. A mutual fund bundles them into one investment, then you own a slice of the whole bundle.
How Mutual Funds Work
You buy shares of the fund
Your money goes into a pool with other investors. The fund uses that pool to buy stocks, bonds, or both.
The price updates once per day
Mutual funds trade at net asset value (NAV), which is calculated after the market closes. When you place an order during the day, it executes at that end of day price.
You can often invest automatically
Many brokerages let you set up recurring purchases into a mutual fund, like a subscription. This is a great way to build the habit.
Index Mutual Funds vs Active Mutual Funds
Most beginners should start with index mutual funds.
Lower fees: Index funds are cheap to run
Simple: You do not need to research companies
Diversified: One fund can hold hundreds or thousands of investments
Hard to beat: Many active funds struggle to outperform after fees
Index mutual fund
Tracks a market index, such as the S&P 500. It is designed to match the market, not to beat it.
Active mutual fund
A manager picks investments trying to outperform. These often cost more; results can vary widely.
Common Mutual Fund Fees
Expense ratio: The annual fee the fund charges. Under 0.10% is great for index funds; over 0.50% is usually expensive.
Sales loads: Some funds charge a fee just to buy or sell. Many brokerages offer no load funds; prefer those.
Account fees or transaction fees: Some platforms charge to buy certain funds. If so, pick a similar low cost alternative.
Minimums and Share Classes
Minimum investment
Some mutual funds require a minimum to start, often $1,000 to $3,000. Others have no minimum, especially on certain platforms.
Share classes
The same fund can have different versions with different fees. If you see multiple tickers for the same fund name, pick the one with the lowest expense ratio and no sales loads.
Popular Mutual Funds to Know
S&P 500 index mutual fund
Tracks the 500 largest US companies. Example type: “500 index fund.” Many long term investors build around this.
Total stock market index mutual fund
Tracks most publicly traded US companies, large to small. More diversified than just the S&P 500.
Target date mutual fund
Built for a retirement year like 2060. It automatically adjusts from more stocks to more bonds over time; it is hands off, and easy.
Balanced mutual fund
Holds both stocks and bonds in one fund. Simpler than building your own mix, but check fees.
Key Takeaway
Mutual funds are a simple way to diversify. If you focus on low cost index mutual funds, avoid sales loads, and keep fees low, you are already doing what many successful long term investors do.