What Are the Best Mutual Funds for Beginners?
Are you looking to invest in the stock market but don’t know where to start? If so, you’re not alone.
Many people are intimidated by the thought of investing, especially in stocks, stock funds, bond mutual funds, or other securities. Maybe you have floated the idea of investing in cryptocurrency or other investments, but want something more traditional to start.
With a little knowledge and guidance, anyone can become a successful investor.
In this blog post, we will discuss what to look for when trying to find the best mutual funds for you as a beginner investor.
First of All, What is a Mutual Fund?
Mutual funds are a great way for beginner investors to get started in the stock market. A mutual fund is a group of stocks, bonds, and other securities that are packaged together and offered to investors.
How Can I Buy a Mutual Fund?
You can buy a mutual fund by opening a brokerage account right on your phone.
What Happens When You Invest in a Mutual Fund?
When you invest in a mutual fund, your money is pooled with other investors and used to buy shares of different stocks, bonds, and other securities.
This gives you exposure to a variety of assets, including stocks, bonds, and other securities without purchasing each one individually.
What Are the Benefits of Investing in Mutual Funds?
One of the benefits of mutual funds is that they are managed by investment professionals. This means that you don’t have to do the research or legwork to find the best stocks and other securities to invest in. The mutual fund manager will do this for you.
By investing in a mutual fund, you are essentially giving a professional manager all of your eggs from your Investment Easter Egg Hunt, and the expert, or fund manager, is dividing those into many different baskets for you, so you don’t have the notorious “all of your eggs in one basket” syndrome.
If one basket tips over or a mystery bunny decides to swipe some candy, you are diversified and still have a ton of treats.
Which Mutual Fund or Funds Should I Choose?
There are many different mutual funds to choose from, so it is important to do your research and find the one that best suits your needs.
When looking for a mutual fund, you should consider the following:
- The objective of the mutual fund
- The type of securities it invests in
- How much risk you are willing to take
- The fees associated with the fund
What Types of Mutual Funds Are There?
In general, mutual funds can be divided into two categories: active and passive.
Active Mutual Funds
Active mutual funds are managed by a team of professionals who buy and sell stocks in an attempt to beat the market.
Passive Mutual Funds
Passive mutual funds, on the other hand, are not actively managed and instead track a specific index.
What is an Index?
A stock market index is a measure of the performance of a group of stocks. There are many different indexes, each measuring the performance of a different segment of the stock market.
Which Mutual Funds Track an Index?
Passive mutual funds that track an index are called “index funds.” Index funds invest in all (or most) of the securities that make up a particular index.
S&P 500
For example, the S&P 500 Index is a popular stock market index that measures the performance of large-cap U.S. stocks. There are many mutual funds and exchange-traded funds (ETFs) that track this index.
The S&P 500 Index is a stock market index that consists of 500 large-cap stocks. S&P stands for Standard & Poor’s, which is a financial research firm. The S&P 500 Index is widely considered to be a good representation of the U.S. stock market.
“Buy a Cross-Section of America”
By investing in a fund that mimics the S&P 500, you are essentially getting diversified exposure to the U.S. stock market, and following the advice of the great Warren Buffett,
“All you have to do is just buy a cross-section of America and then never listen to people like me or read the papers or do anything subsequently,”
the Oracle told Yahoo Finance.
What Are Some Examples of Popular Indexes?
In addition to the S&P 500, other popular indexes include:
– Dow Jones Industrial Average (DJIA)
– Nasdaq Composite Index
– Russell 2000 Index
These are just a few examples of mutual fund indexes.
There are many different mutual funds to choose from, each with its own objectives, strategies, and fees.
It is important to do your research and find the mutual fund that best suits your needs.
What Factors Should You Consider When Choosing a Mutual Fund?
There are many factors to consider when choosing the best mutual fund for you. Some important considerations include your investment goals, risk tolerance, and time horizon.
Fees
It is also important to research the fees associated with each mutual fund. Generally, the more active a mutual fund is, the higher the fees will be.
So, which mutual funds are best for beginner investors?
Below is a list of experts’ analysis of some of the best mutual funds for beginners in 2022. This list is not exhaustive, so please do your own research to find the mutual fund that best fits your investment goals.
#1 Vanguard S&P 500 Index Fund (VFINX)
The Vanguard S&P 500 Index Fund tracks the S&P 500 Index.
The Vanguard S&P 500 Index Fund has low fees and is passively managed. The expense ratio for this mutual fund is only 0.04%.
This mutual fund is also very well diversified, with over 500 different stocks in the portfolio.
VFINX has a return of 24.6%.
#2 OTRFX: On Track Core Investor Class
OTRFX is another mutual fund for beginner or advanced investors.
This mutual fund is passively managed and tracks the Russell 3000 Index.
Wait, What is the Russell 3000 Index?
The Russell 3000 Index is a stock market index that consists of 3000 small-cap stocks. The Russell 3000 Index is widely considered to be a good representation of the U.S. stock market.
By investing in a mutual fund that tracks the Russell 3000 Index, you are getting diversified exposure to small-cap stocks, which have historically outperformed large-cap stocks over the long run.
OK…Back to the Mutual Funds
The OTRFX mutual fund has low fees and is passively managed. It is managed by On Track Financial, which is a mutual fund company that specializes in small-cap stocks.
The expense ratio for the OTRFX mutual fund is 3.050%.
OTRFX performance over five years is 5.51%.
#3 Fidelity ZERO Large Cap Index Fund (FNILX)
The Fidelity ZERO Large Cap Index Fund has zero fees and is passively managed. The performance over five years is 10.99%.
This mutual fund is also very well diversified, with over 3000 different stocks in the portfolio.
The Fidelity ZERO Large Cap Index Fund is a mutual fund with no fees. That’s right, no fees. This mutual fund tracks the S&P 500 Index.
#4 Fidelity Contrafund (FCNTX)
The Fidelity Contrafund tracks the performance of the S&P 500 Index.
The Fidelity Contrafund has low fees and is actively managed.
The 5 year average return is 15.21%.
This mutual fund is also very well diversified, with over 500 different stocks in the portfolio.
#5 Schwab Fundamental U.S. Large Company Index Fund (SFLNX)
The Schwab Fundamental U.S. Large Company Index Fund tracks the Russell 1000 Index.
This mutual fund is passively managed and has low fees, with an expense ratio of only 0.25%.
The portfolio consists of approximately 1,000 large-cap stocks based on fundamental factors such as cash flow, earnings, and dividends.
What Now?
We hope this article was helpful in identifying the best mutual funds for beginner investors. Mutual fund investing can be a great way to get started in the stock market.
Mutual funds offer diversified exposure to different stocks and come with low fees.
Please do your own research to find the mutual fund that best suits your needs and aligns with your investment goals.
Watch financial news, gather data, and ask questions. Look up price, past performance and growth.
Today, we can access information about the market a billion ways, easily on our phones.
What Else?
Do you know someone whose investment style you admire? Perhaps offer to take them to lunch to ask their advice.
Check your local library and college to see if there are free classes to help improve your stock market knowledge.
Do your research, speak to people you trust, and gather information and opinions.
Ultimately, trust your instinct when choosing the best mutual fund for you and your investment goals.
Remember to do your own research and consult with a financial advisor to find the best mutual fund for you.
Happy investing!