WISER’s Financial Literacy Series: I’m Ready to Save, Now What? – Mutual Funds

Whether you have $25 or $2,500 to spare, there are smart ways to invest your money to build your retirement savings. WISER is highlighting different strategies for saving, depending on your financial situation, age and personal feelings about risk taking. Use this brief to brush up on your financial knowledge to make the most of your money.

Demystifying Mutual Funds:

Mutual funds can be a great investment choice for people of all ages. Although there are hundreds of different mutual funds, knowing a few general facts about them can help get you started.

What Are Mutual Funds?


Mutual funds are simply investments that pool the money of thousands of small investors into stocks, bonds and other securities.  The key aspect of mutual funds is that you purchase shares of several stocks, not just a single stock. This means mutual funds are less risky because your money is spread throughout several investments, whereas single stocks are based on individual companies and are subject to more volatility, or risk.

What Should I Consider When Choosing Mutual Funds?

With hundreds of available mutual funds to choose from, it is important to know what you are looking for in order to make a wise investment choice. In choosing how much risk to take (in general: the higher your potential rate of return, the higher the risk), the main thing you should think about is how far away you are from retirement. If you are not planning to retire for another 20 years, your investment can contain riskier funds because if you lose money, you likely have time to make it back.  When you begin to near retirement age, you should move your funds into those with lower risk and return, to secure your investment.

Personal feelings should also be taken into account when investing. It is essential to consider your general financial situation in order to determine how much risk you can take with your money.  If you are risk averse, and do not think you will feel comfortable riding through the highs and lows of the market, it may be better for you to simply accept lower return but with peace of mind. Finally, educate yourself about the various expenses tied to certain mutual funds.

How Do I Buy Them?

If you purchase mutual funds through your employer’s 401(k) plan, you will be given a menu of options from which to choose that should offer well-balanced choices.  If you are buying them on your own, you have a few choices:

— You can buy mutual funds directly from the fund companies, such as Vanguard or Fidelity.

— You can buy them from a “supermarket” which is basically one company offering investors access to a broad range of mutual funds.  You can set up a brokerage account from one of the fund companies that will enable you to buy funds from other providers. *Be aware of fees, however, that might come along with the convenience of using a “supermarket.”

— You can choose to go to a financial advisor or broker to purchase mutual funds. Because you have personal assistance, this option is often accompanied by sales charges, so be sure to ask about those possible fees upfront.

Stay tuned for our next installment in the Financial Literacy Series: Get Clued in on CD’s

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