Mutual Fund Investing For Dummies ... And Everyone Else

Mutual Fund Investing For Dummies ... And Everyone Else

Learn the right way to invest in mutual funds.

Investing is important.

You can't ignore the fact that in 10, 20, or 30 years, your money will buy less stuff than it can now.

Mutual funds can help protect the value of your money. In fact, that is just one of benefits of mutual fund investing. Mutual funds can help you achieve your financial goals if you use them correctly.

Since you are reading this article, you probably have no idea how to get started with mutual funds.

That’s okay; everyone starts somewhere. The best thing you can do is to learn how to invest the right way.

Let me help you. I can show you how to manage your risk, save money, and earn better returns using a few simple tools. This page will give you a few tools that are very easy to understand and execute. Anyone can use these tools.

Professional investors use these same strategies to earn a lot of money, and you can too. Mutual Fund Investing For Dummies ... And Everyone Else will show you how to do it.

Manage Your Risk

Protecting your money should be your first priority.

Every investment has risks. Managing those risks can help you protect your investment so you have enough money when you need it. You've worked hard to earn your money, right? Even if you didn’t, I’m sure want to hang on to it for a while. With that in mind, let's consider your risks.

Amazingly, many investors skip right over the risks and ask, "how much money can I make?" That is a huge mistake.

Earning money is important, but it is less important than your risk level. Simply ignoring the risks on your investment can be disastrous. Don't make those mistakes; take control of your investment risk. Here are some easy ways to do it:

Focus on risks before returns. Many investors who lose money are surprised to learn that they took on too much risk in the first place. Your best defense against high risk is to evaluate the risks first. Look for a fund with a low standard deviation. A low standard deviation is an important indicator of consistent returns.
Diversify your investments. Investment diversification is the best way to protect your money. Mutual funds make it easy to diversify because they already invest in a bunch of different securities.
If you decide to invest in mutual funds, start by buying between 3-5 different funds. This will keep you well-diversified without spreading out your investments too much. You can always add more funds as you go along.
Allocate your assets. A good asset mix can keep you diversified and lower your risk. Asset allocation is basically deciding how much to put into each different type of investment, such as stocks, bonds, and cash.
Your time horizon - the amount of time you will be investing - can help determine how much you should put into riskier investments. For example, money that you need within five years can be placed into a short-term investment like a bank CD or money market account.
Rebalance your funds regularly. If you take the time to setup an investment allocation, you want to make sure it stays on track. Make small corrections to keep your asset allocation consistent. Move money from your best performing funds to help out the slow performers. By doing this, you are buying low and selling high. This can greatly increase your returns and lower your risk over the long-term.

Risk management is one of the hardest investing skills to master. But it is a worthwhile skill to learn; risk management can save you money. This next section discusses even more ways to save money on your mutual funds.

Save Money

There are many ways to save money on mutual funds. Everyone likes to save money. It doesn't take a genius to know that the more money you save, the more you can keep for yourself. Saving money on your mutual funds also means you will have more money to invest. That is good news for you as an investor.

Here are a few suggestions to help you save money:

Don't pay a sales charge. Why would you pay to invest your money if you don't have to? Instead, keep more of what you earn. There are plenty of no load mutual funds that do not charge you a sales charge to invest. Index investing is another great option; most index funds have no sales charges and low management fees. That brings me to my next suggestion...
Don't pay high management fees. It doesn't take a genius to understand that average performance - investment costs = below average performance. To save on investment fees and management costs, find a mutual fund with a low expense ratio. The expense ratio is a measurement of how well your fund manages its expenses. There are tons of low-cost mutual funds you can invest in, and many of them earn impressive returns.
Pay less taxes. Whenever you invest, be sure to consider both total returns and after-tax returns. Tax-exempt investments (such as municipal bond funds) generally pay tax-free dividends, which can save you money on your taxes.
You can also open an IRA or Roth IRA to save even more on your taxes. Generally, earnings on an IRA are tax-deferred and earnings on a Roth IRA are tax-free. These accounts are designed for retirement, but you can also use them toward college-level education expenses or your first home purchase. Depending on your income, an IRA contribution can also be used as a tax deduction.

Saving money and investing can generate great returns over the long term. The next section will discuss a few strategies to help you increase your mutual fund earnings.

Earn Better Returns

Let's be honest, investing is about earning as much as possible with your money. Every investor want to earn as much as possible while taking few risks. Balancing risk versus reward is a give and take process.

These tips will help you earn better returns without increasing your risk:

Compounding interest helps your money can earn more returns, faster. You should always reinvest your dividends and/or capital gains if you can afford to. When you reinvest in a mutual fund, your money becomes "the little engine that could," generating powerful returns over time. This is the most powerful investment tool you can use.
Don't try to time the market. You may wonder, "when is the best time to invest?" You can stop wondering. The best time to invest is always right now. What matters most is how long your money stays invested. That's why most professional investors don't try to time the market.
Dollar cost average your investments. This is the easiest way to increase your returns with (almost) no effort on your part. If you invest regularly - perhaps monthly or every paycheck - you are already dollar cost averaging. Each deposit will buy more shares when your mutual fund price is lower and less shares when the price is higher. That means you are buying more shares at a lower price, which can increase returns over the long term.
Value average your investments. I'm sure you are familiar with the phrase "buy low, sell high." One way to actually do it in your portfolio is through value averaging. When the value of your investment goes down, you can invest more money at a lower price. That can decrease your average cost and increase your long-term returns.

John Bogle - the inventor of the index fund - said it best when he said that "in the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses." He understood that the longer you can stay invested, the more opportunities you have to earn great returns.

That is exactly how you should approach your mutual funds if you want to be successful. These different strategies should help you to minimize your risks, lower your investment costs, and earn more money on your investments.

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