How to Invest in Mutual Funds Online - SmartAsset

Mutual funds allow investors to diversify their portfolios by purchasing a broad range of assets in a single fund. Investors can buy mutual funds online directly through a fund provider, an investment company or an online brokerage. Here is how you can get started in investing in mutual funds online. You may also work directly with a financial advisor who can handle help you invest in mutual funds and manage your investments for you.

What Are Mutual Funds?

A mutual fund is a professionally managed investment fund that pools money from investors to purchase securities. Those securities can include stocks, bonds, money market funds or a combination of all three.

When investors buy a mutual fund, they buy shares in the fund and not in the securities themselves. Thus, they only indirectly own the securities contained in the mutual fund. Nevertheless, the performance of the securities the mutual fund comprises determines the performance of the fund.

Investors allow people to invest in hundreds or thousands of stocks, bonds or other securities in a single fund. Thus, mutual funds make it much easier to diversify your portfolio than you could do so on your own.

There are many different types of mutual funds. Some invest in the entire stock market, while others invest in just a handful of companies. Some might use a stock index, like the S&P 500, to select their securities. While there are many types of mutual funds, they all package multiple securities into a single fund.

Where to Buy Mutual Funds

Just like there are many different mutual funds you can buy, there are also many ways you can invest in them. If you have an employer-sponsored retirement account, like a 401(k), your only choice for investments might be a selection of mutual funds. But there are plenty more ways to invest in them.

Another option is to buy mutual funds directly from the company that manages them. Examples of mutual fund providers include iShares, Vanguard and Fidelity. Your financial advisor might also want to sell mutual funds to you but be wary of excessive fees in this situation.

How to Buy Mutual Funds in 4 Steps

Once you’ve developed a strong understanding of mutual funds, buying them can be an easy and straightforward process.

1. Decide Where to Invest

The first step is to decide where to invest. You can skip this step if you simply want to invest more in your 401(k). But if you want to use one of the best online brokerage accounts, there’s a little more work to do. Research your options and determine which one might be the best choice. Consider things like the selection of funds, fees, interface/mobile app usability and customer service.

2. Research Mutual Funds

The next step is researching mutual funds to find the fund(s) that match your needs. During this step, consider things like your investment goals and risk tolerance. For example, if your risk tolerance is low, you might prefer total-stock-market mutual funds or perhaps a balanced fund. If you have a long time horizon and want your investment to grow, take a look at growth funds. Or if you prefer consistent income, look into funds that pay a regular dividend. While there are many choices, the best choice for you depends on your situation and goals.

Another thing to be mindful of is mutual fund fees. Mutual funds can sometimes have high fees, especially if they are actively managed. Passively managed mutual funds tend to have lower fees. A 1% fee may not sound like much, but a fee that high can significantly reduce your returns over time. In general, you should look for the lowest fees possible when choosing a mutual fund.

3. Decide How Much to Invest

The next step is to decide exactly how much to invest. This is a personal choice, but you can only invest as much as your budget permits. If you are working to pay off debt or put money into a high-yield savings account, it’s usually best not to neglect those so you can invest.

Also, keep in mind that some mutual funds have investment minimums. While mutual funds with no minimums are now appearing, minimums can sometimes be thousands of dollars. If the mutual fund you want to buy has a high minimum, you might have to set money aside until you can afford to invest.

4. Manage Your Portfolio

Once you have chosen the mutual fund or funds you want to buy, the last step is the ongoing management of your portfolio. How much work that requires depends on your portfolio. For example, a small portfolio of a single mutual fund can take as little work as transferring money into your account and placing orders for your fund.

Maintenance is likely to be more involved if you have a large, complex portfolio with many funds. For example, quarterly rebalancing is a good idea. In addition, you may want to employ advanced strategies, like tax-loss harvesting. In this case, working with a financial advisor may be a good idea.

The Bottom Line

Mutual funds are investments that let you buy a collection of securities all at once. Mutual funds might invest in stocks, bonds, money market funds or other assets. You might be able to invest in mutual funds through your 401(k) or similar plan or you can invest directly with a mutual fund provider. If choosing the latter, you’ll have to do your research, decide how much to invest, then monitor your portfolio.

Tips for Investing in Mutual Funds

Financial advisors help investors analyze various investment options and create a plan of action to meet their goals. Before investing in mutual funds, talk with your advisor to understand how it fits within your portfolio. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When investing your money, it is important to diversify your assets among many different types of stocks and bonds. This helps you gain exposure to multiple sectors of the market and benefit from their growth. Our asset allocation calculator helps you select a profile that’s right for you based on your answers to simple questions.