Mutual Funds For New Investors

You want to get started as a mutual fund investor. What funds should you invest in? You have thousands of different mutual funds to choose from. I suggest you first open an account with a major no-load mutual fund company like Vanguard, Fidelity or T. Rowe Price. Then pick these two funds to invest in, investing an equal amount in each.

Remember, you are just getting your feet wet and don't want to start with a bad experience. So, here are what I suggest are your best mutual funds to get started with. Your overall risk will be low to moderate.

Your first pick is a no-brainer, a money market fund. These are the safest of all mutual funds and their value or price does not fluctuate. In this investment you simply earn interest in the form of dividends. The amount of interest you earn varies, based on interest rates in the economy.

There should be zero cost to invest in a money market fund, no commissions or sales charges called LOADS. Once you have money invested here, you can move it at will to other funds offered by the fund company (also called a fund family).

Keeping things simple, your other best "starter fund" is called a BALANCED FUND. These funds invest in both stocks and bonds, so risk is generally moderate. These days there are several variations of balanced funds, giving the investor plenty of latitude. There are traditional balanced funds, asset allocation funds, lifecycle funds and target retirement funds.

All balanced funds have a diversified portfolio of stocks and bonds, but they vary in terms of safety, dividends, and growth potential. Basically you can place them into three different risk categories: conservative, moderate, or aggressive. I suggest you go with a balanced fund labeled as moderate in the fund literature you get from the fund company.

Traditional balanced funds have been around for many years and have a moderate asset allocation of about 60% stocks and 40% bonds. This ratio of stocks to bonds remains fairly constant. These traditional funds are generally simply called "balanced funds", and are a good solid place to invest for the new investor.

If you want to get more conservative or aggressive, I suggest lifecycle funds. For example, an aggressive-growth lifecycle fund would be the riskiest and would be heavily invested in stocks vs. bonds. Dividends would be low to insignificant. On the other hand, a conservative lifecycle fund emphasizes bonds vs. stocks, and hence is safer and pays higher dividends.

For most new investors I suggest a traditional balanced fund, or a lifecycle fund labeled as either moderate-growth or conservative-growth.

With half of your money in a money market fund and half in a balanced fund you won't get rich quick, but you won't lose your shirt when things get ugly in the economy either.

Once you learn how to invest and gain in confidence, you can expand your horizons. All three of the fund families mentioned offer a wide array of investment choices. Plus, all three offer funds with no commissions, no sales charges ... NO-LOAD. Learn how to invest at your own pace. Until you feel up to speed, just relax and stick with your starter funds.