You just graduated from high school or college. You landed a real full-time job. Your first couple paychecks have been cashed. You bought those "I Gotta Have It" items. You started a small emergency savings account. Now its time to start investing some money for other goals.
If I just described you, or you are just ready to get started, it is time to research and invest in your first mutual fund. Once you start, you then need to set up a systematic investment program to make additional contributions on a regular basis. If you do these two things, you will start building a nice investment portfolio.
Why A Mutual Fund?
1. Low Initial Investment: Many funds have a minimum initial investment as low as $100 to $250. This allows nearly anyone to get started and gain exposure to the stock, bond and international markets. There are two ways to begin investing in funds. You can open a Roth or regular IRA account for retirement, a non-qualified brokerage or mutual fund account and if you are really serious... open both.
2. Diversification: One of the greatest benefits of using mutual funds is investment diversification. When you invest in funds, you get a small piece of every stock, bond or international equity that your fund invests in. If you had to do this on your own, it would cost hundreds of thousands or even millions of dollars to participate. You get this diversification in every dollar you invest.
3. Professional Management: Lets face it, investing in the markets can be risky, especially when you are just starting out and your experience is limited. Every mutual fund has a profession management team that has been buying and selling stocks and bonds for many years. When you invest in a mutual fund, you get their services as part of your investment. If you select a great fund with great management, you are sure to have great long-term results.
4. Low Cost: There are many funds out there to choose from, so it is very important to find the best quality at the lowest cost possible. This usually means that you will invest in a "No-Load" mutual fund. No-load means you pay no commissions to purchase the fund and 100% of your money goes immediately into your investment account. You will also want to keep an eye on your mutual funds annual expense ratio which is what the management team charges for their services. These can range anywhere from 0.5% to 1.5% depending on the type of fund that you invest in.
5. Liquidity: Having the ability to get your money quickly if you need it is another great benefit of mutual funds. If you place a trade order to sell (or buy) before 4:00 PM when the markets are open, your trade is guaranteed to be executed at the close of the market that same day. If you place it after 4:01 PM, your trade will be executed at the close of the next trading day. Having this guaranteed liquidity within a maximum of 24 hours is exclusive to mutual funds and adds a great deal of safety to your investment.
6. Return Potential: Probably the greatest benefit to investing in mutual funds is your potential to earn above average investment returns. With bank savings accounts and CD's earning 1% to 3%, getting 6% to 10% annually over time from your fund will have a huge impact on the growth of your investment and the expansion of your wealth. Some mutual funds from the top management companies have even earned higher returns over a 10 and 15 year period. When you find these, hang on to them and enjoy the ride.
Summary: Making your first investments can be tricky, expensive and risky. But if you choose a quality no-load mutual fund with a great management team, you should have a great start to your investment program. If you are unsure of what funds are best, make an appointment with a local "Fee-Only" financial adviser and let them help you get started. Either way, get started now. Your future and financial independence depend on it.
To discover additional investment, financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit by clicking here. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.
About the Author:
Keith Maderer is a financial expert and has been a investment and tax adviser in the Western New York area for over 30 years. He is the owner of SENIOR Financial and Tax Associates and the founder of the Maderer Foundation, a private scholarship program. Keith is also the author of "How To Get Your College Education For Less". Available on Amazon.com - ISBN No: 978-1-4538-2053-7.
You can get your FREE Wealth Expansion Kit, or check out his blog by visiting http://www.sftaweb.com/
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