Financial Planning, Investments, Retirement

Mutual Funds for your regular contributions



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Sally says………….

Mutual Funds, stocks, bonds, exchange traded funds, hedge funds, fund of funds, Ranch flavored or classic Doritos, so many choices…..

Mutual funds have been around since the 1970’s. I still own the first fund I bought, Fidelity Contrafund, 26 years ago or a little over 3 years in dog years.

Mutual funds we’re a great invention, allowing the regular Joe or Rover to get in the stock market without having to pick their own individual stocks. You could pool your money with other people and get professional advice and suddenly have an instant portfolio of stocks.



Advantages of Mutual Funds over choosing individual stocks and bonds:

  • Instant diversification
  • Professional management
  • Easy to purchase, sell and reinvest
  • Great tool for those who are investing on a regular basis, like weekly or monthly. Unlike an ETF where you might pay a brokerage commission* each time, using No Load mutual funds, you could buy a small amount on a regular basis without an additional fee.

*Places like Fidelity and Schwab do offer some proprietary ETF’s without commissions.

Disadvantages of Mutual Funds:

  • Market risk or interest rate risk
  • Possible sales charges
  • Fees
  • Possible redemption fees( when selling)
  • Taxes- probably one of the biggest downside to mutual funds. You are pooling your money rather than buying an individual stock at your own cost basis. So you could end up paying taxes without having received the benefit!


My mutual fund cheat sheet when researching;

  • Expenses- compare to its category
  • Manager Tenure ( has he/she been there long enough)
  • Sales charges ( to buy or sell)
  • Performance- how has it compared to its index. If it’s not consistently beating it to justify the expenses, buy an index fund!
  • Look at 3, 5 , and 10 year performance numbers.
  • Look at how it’s done compared to its peers. You want a fund in the top third.
  • Annualized return numbers can be deceptive if the fund had a single monster year, that could throw off its long-term numbers.
  • Look at the turnover ratio. 100% means the manager has essentially rotated all the holdings into portfolio thereby generating taxes for its customers. The lower the ratio- the more the style is closer to a buy and hold strategy.

Low cost fund families such as Vanguard should be your first stop if you are just starting to research.

All they sell is no-load funds. No Load, meaning there is no upfront commission. If you are doing the research, there is NO reason for you to pay a commission!! Fees make an enormous impact over time which is why Vanguard is so popular.

You should know that approximately 90% of actively managed mutual funds don’t beat their index on a regular basis. This is led to the growth of indexing ( and ETF’s- refer back to Robo Adviosr blog post ) which is when you are really just trying to match the performance of an index, the Dow Jones, for example.

Why can’t they beat their Index- FEES!!!!!!!!!   They have to pay the manager, advertising costs, accounting, legal,etc..

Get to Work..

The best place to do your research is This is the place the pros go for all their information, to do research, and to develop portfolios. It’s loaded with info!

It can be overwhelming. There are large caps, further brokern down into large growth in large value . There are mid caps, small caps, micro caps, international, emerging markets etc.

But you gotta start somewhere, right? Sit, roll over, beg…

Knowledge is power and will make you a confident investor.

For additional info, check out the SEC’s piece on Mutual Fund Investing