How to get started with investing in mutual funds
Here are a few easy steps to get started with investing in mutual funds.
1. Open a brokerage account
Start by opening an account with an online brokerage that sells mutual funds. You can choose a taxable brokerage account, a traditional IRA or Roth IRA, or other accounts that might fit your financial needs. If you're new to investing, check out our list of best stock brokers for beginners.
2. Be aware of mutual fund fees
Many of the best brokers for mutual funds no longer charge commissions on mutual funds, and offer a wide range of no-transaction-fee mutual funds. Some brokers still have a few mutual funds that charge commissions or loads, but it can be worth paying a fee to get the right fund for your investment goals.
3. Choose the right mutual funds for your investment goals
Ready to start choosing your mutual fund investments? Each mutual fund should offer a fund prospectus that shows key facts and details, including:
- Performance: Has the mutual fund price gone up or gone down in the past few months or years?
- Portfolio composition: What assets (stocks, bonds, etc.) does the mutual fund invest in, and where exactly is your money going if you buy this fund?
- Price: How much does the mutual fund cost?
- Fees: Even if the broker doesn't charge commissions, what are other fees of this mutual fund, such as the expense ratio?
The best brokers for mutual funds make it easy to investigate whether a particular fund is the right choice for your investment goals -- such as whether it's a higher-risk (but higher-growth potential) fund, or a lower-risk (but lower-growth) fund.
Some brokers also offer mutual fund screener tools to help you find the right mutual funds based on your investing goals, your comfort level with risk, and how you want to manage your money.
4. Expand your investing horizons
After you open a brokerage account, don't assume that your investment choices are limited only to mutual funds. You can choose from thousands of exchange-traded funds (ETFs), many different types of stocks, bonds, and money market funds in a brokerage account. The best brokers often have other value-adding features, such as stock research, educational resources, and more.
What investments can I buy with the best brokers for mutual funds?
Many online stock brokers offer a selection of mutual funds customers can invest in, including index funds and actively managed funds. With low or no commissions, low fees, and a focus on low-expense-ratio index funds, online brokers can be a particularly affordable way to invest in mutual funds.
Most online stock brokers also let you invest in exchange-traded funds (ETFs), a newer way for investors to mutually benefit from bundled funds. Rather than a fund that actively invests pooled money into various stocks, an ETF is a group of securities bundled into a single entity that you can invest in like a traditional stock.
Mutual funds and ETFs can include a wide range of investment assets. Here are a few examples of what's in a mutual fund and how the investments work.
Stock investing with mutual funds
One common type of mutual fund is a stock mutual fund. Instead of choosing individual stocks, a stock mutual fund lets you own a wide range of stocks, all in one investment.
Stock mutual funds can include index funds (like the S&P 500) or actively managed funds where the fund manager tries to pick a combination of stocks that they believe are likely to earn ROI to suit the goals of the fund's investors. Mutual funds can invest in particular stock categories, industries, or sectors, or invest based on certain themes and goals.
Bond investing with mutual funds
Mutual funds can also invest in bonds. Whether it's long-term or short-term, federal government bonds, municipal bonds, or corporate debt, there are many ways to invest in bonds and earn yield. Mutual funds can also include a blend of stocks and bonds in their portfolio.
Mutual funds for other assets
Stocks and bonds are not the only investments you can buy with mutual funds. You can also invest in short-term money market funds that deliver similar yields as the best savings accounts or money market accounts. There are also mutual funds that invest in real estate, cryptocurrency, and other types of assets.
How much money do you need to start investing in mutual funds?
During the past few years in the investment world, it's become commonplace for online brokers to offer low-cost investing where you can get started with just a few dollars. Many of the best brokers for mutual funds do not require you to have much money to start buying mutual funds.
But mutual funds are a bit different than ETFs or buying individual stocks -- some mutual funds will require you to commit more money upfront than it takes to buy fractional shares of stock with a few dollars. The number to look out for here: is "minimum investment requirement." Some mutual funds have higher minimum investment requirements than others.
Here are a few examples of minimum investment requirements for mutual funds from some of the best brokers.
Charles Schwab
- $100 minimums for bond and equity mutual funds managed by Charles Schwab
E*TRADE
- $500 minimum investment for E*TRADE prebuilt portfolios of mutual funds
- $25 per recurring investment in automatic investing mutual funds
Vanguard
Investor shares:
- $1,000 for Vanguard Target Retirement funds and Vanguard STAR® Fund
- $3,000 for most actively managed Vanguard funds
Admiral shares:
- $3,000 for most index funds
- $50,000 for most actively managed funds
- $100,000 for certain sector-specific funds
Keep in mind that "minimum investment requirements" for mutual funds are not the same as account minimums. You can often open a brokerage account with $0, but if you want to buy certain mutual funds after opening the account, you might need a specific amount of money to afford that mutual fund's minimum investment requirement.
Want to avoid the higher minimum investment requirements of mutual funds? Consider investing in ETFs. These funds are more flexible than mutual funds, and can often let you invest with as little as $1.
Or if you want mutual funds with no minimum investment requirement, check out Fidelity -- this broker offers several mutual funds that require zero minimum investment.
What are the risks of mutual fund investing?
Many mutual funds (unless they're low-risk money market funds) have a risk of loss -- the price of your mutual fund shares could go down in the short term or in the long term. You could lose some or all of your investment.
However, mutual funds are generally considered to be less risky than investing in individual stocks. That's because mutual funds give you built-in diversification by buying lots of stocks or bonds at once, instead of just one at a time.
Make sure you read the fine print on your mutual fund so you understand exactly what you're investing in -- which stocks and bonds are in its portfolio. See how your mutual fund has performed in the past few years, and get details on how much it costs in fees. But remember that past performance is no guarantee of future results -- even the highest-performing mutual fund of the last 10 years could go on a losing streak.
What is a mutual fund?
A mutual fund is an investment vehicle that pools investors' money together to invest in a common purpose.
For example, let's say a technology-focused mutual fund receives $100 million in investor capital. Its managers would take that money and invest in a portfolio of technology stocks. If the portfolio rises in value, all the fund's investors mutually benefit.
Fact Checked
Eric McWhinnie
2024 Award Winner
