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Mumbai, Feb 21 () More and more retail investors are parking their funds in retirement solution-oriented mutual funds, taking the category AUM to Rs 10,425.3 crore as of end January -- a 24.5 per cent growth over Rs 8,376.2 crore in April 2019.<p>Industry body Amfi attributes this rising inflows into such schemes to the robust SIP segment, which has reached an all-time high of Rs 8,532 crore by retail investors alone, and also overall mutual fund AUMs hitting an all-time high of Rs 28.18 lakh crore in January.</p><p>"Within the total mutual fund AUMs, assets under management of retirement solution-oriented schemes has grown 24.46 per cent to Rs 10,425.28 crore as of end January 2020 as against Rs 8,376.19 crore as of end April 2019," says Amfi.</p><p>Commenting on the numbers, Amfi chief executive N S Venkatesh said the growth is led by retail investors who are flocking to mutual funds in general and retirement-led schemes in particular as their awareness levels on the need for long-term investment rises.</p><p>"Steady month-on-month positive inflows during the last 10 months into retirement solutions-oriented category of schemes, is reflective of its enhanced awareness," he said.</p><p>Retirement-oriented schemes are typically open-ended, with lock-in period of five years or till the retirement age, whichever is earlier.</p><p>As of January end, such schemes had 25.42 lakh folios in 24 funds, compared to 24.97 lakh at the end of April 2019 in 21 such schemes. Retail investors are putting in around Rs 8,532 crore every month through SIPs and average of Rs 200 crore every month into such funds.</p><p>According to him, retirement schemes are best suited to deliver long-term returns through systematic investment availing a mix of equity and debt schemes. Increasingly, retirement schemes are being preferred alongside PPF and other traditional debt-oriented avenues.</p><p>Increasing longevity and the need to make large pool of financial corpus, is driving people to park their funds with market-linked mutual fund schemes, Venkatesh said.</p>Meanwhile, the average AUM of overnight mutual fund schemes has grown five times over the past 10 months to Rs 52,524.98 crore in January from Rs 11,566.84 crore in April 2019, taking the folios of overnight funds to 46,763 from 21,363 during the reporting period.  BEN  BAL

Retirement funds AUM jumps 24.5 pc to Rs 10,425 cr in Apr-Jan

<keyword id="25452" type="UNKNOWN" weightage="20" keywordseo="retirement">Retirement</keyword> in today’s dynamic <keyword id="621615" type="UNKNOWN" weightage="20" keywordseo="work-environment">work environment</keyword> can be sooner than imagined. Gone are the days, where the government-funded pension was sufficient as a security blanket to lead a peaceful life after retirement. With a huge chunk of workforce being in the private sector, it has become imperative to start planning for retirement sooner than later.<br />
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Here are some of the steps that you should take to plan your retirement:<br />
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1.      <strong>Save and invest wisely:</strong> Disciplined savings (about 20% of your income) done month on month, and invested wisely in <keyword id="6362476" type="ORGANIZATION" weightage="20" keywordseo="investments">investments</keyword> like <keyword id="6354553" type="COMPANY" weightage="20" keywordseo="real-estate">real estate</keyword>, stocks and <keyword id="6357979" type="ORGANIZATION" weightage="20" keywordseo="mutual-funds">mutual funds</keyword>, gold, pension plans,etc. can yield and ensure a steady flow of income during your later years.<br />
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2.      <strong>Plan to pay off your debts: </strong>High interest debts are more likely to sabotage your retirement savings, if you don’t plan well. Also, housing loans usually are the long-term loans, which will take years to repay. If you plan well, you will be able to repay these loans by the time you retire, thus saving a big chunk of money for your post retirement living.<br />
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3.      <strong>Refinance: </strong><keyword id="6354730" type="UNKNOWN" weightage="20" keywordseo="Home-loan">Home loan</keyword> <keyword id="6371181" type="UNKNOWN" weightage="20" keywordseo="interest-rates">interest rates</keyword> are around 10.15 %. If you are paying significantly higher interest on your home loan, it makes sense to take a relook at it. You might save a huge chunk of money on the interest outgo.<br />
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4.      <strong>Minimize lifestyle inflation: </strong>Retirement can last 20+ years these days. If you minimize lifestyle inflation, then you’ll have more money to put towards retirement. In other words, be the ‘Master of the Middle’, wherein you are not in your extremes when it comes to spending.<br />
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5.      <strong>Buy Insurance:</strong>It’s extremely important to protect yourself and your loved ones in case something happens. Ensure you buy a life and health insurance for yourself and dependents and pay the premium on time. It’s also a good idea to make a Will and update it whenever there is a significant life change.<br />
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6.      <strong>Find alternate sources of income:</strong> Having diverse income streams is always better. This way if something goes wrong with one, you have others left.<br />
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7.      <strong>Have a <keyword id="854889" type="UNKNOWN" weightage="20" keywordseo="retirement-plan">retirement plan</keyword>:</strong> Defining a sense of purpose clearly, or keeping your to do list ready, makes the transition of working full time to doing your own stuff smooth. Happiness in retirement is a balance between staying active and staying relaxed.<br />
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The concept of retirement is undergoing a makeover these days, with more and more people wanting to do stuff on their own terms, while continuing to work. By following the above explained steps diligently, the only thing one needs to think is not when and how to retire, but how to rewire oneself post retirement. <br />
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<strong>About the author:</strong><span> Rajiv Raj is the director and co-founder of</span><a href="http://www.creditvidya.com/">www.creditvidya.com</a><span>.<br />
<em>Image: thinkstock </em></span><br />

Want to retire soon? Here is your action plan

<ul class="summary-list"><li>Mutual funds are an easy way to invest in a diverse group of assets through one purchase.</li><li>Mutual funds are traded through a brokerage account. You can open one on your own or you may have one through your employer's retirement plan.</li><li>Always look at the risks and fees before making any investment, including mutual funds.</li><li><a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.142409529&amp;foc=1&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_mutual_funds" rel="nofollow">Ally Invest makes investing in mutual funds easy. Open a brokerage account today and get started with a few clicks »</a></li></ul><p>Mutual funds are a popular way to <a href="https://www.businessinsider.com/what-is-buy-and-hold-investing-strategy">invest for long-term goals</a>, like retirement.</p><p>According to Statista data, <a href="https://www.statista.com/statistics/246224/mutual-funds-owned-by-american-households/">44.8% of US households</a> own mutual funds. There are nearly <a href="https://www.statista.com/statistics/255590/number-of-mutual-fund-companies-in-the-united-states/">10,000 mutual funds</a> to choose from based in the United States and, if you add up the assets in every US-based mutual fund, investors have <a href="https://www.statista.com/statistics/255518/mutual-fund-assets-held-by-investment-companies-in-the-united-states/">$17.71 trillion stashed away</a> in these funds.</p><p>Clearly, mutual funds are a big deal. Mutual funds are a <a href="https://www.businessinsider.com/difference-between-etf-and-index-fund-2016-4/warroom">single investment that allows you to invest in many underlying assets</a> at once. That means one click of the mouse could get you a basket of stocks, bonds, or a combination.</p><p>Mutual funds may specialize in following a particular index, helping investors reach a goal like retirement, or give them exposure to a diverse number of assets around a particular theme or asset type.</p><h2>How to invest in mutual funds</h2><p>If you are interested in investing in mutual funds yourself, follow these steps to invest in the right funds for your financial goals.</p><h3>1. Open and fund an investment brokerage account</h3><p>The first step to investing in mutual funds is to <a href="https://www.businessinsider.com/what-is-a-brokerage-account-first-step-towards-investing">open an investment account</a>, also known as a brokerage account. </p><p>Most major brokerages in the US allow you to buy and sell mutual funds. Some brokerage firms have their own mutual funds, but you are not limited to buying only the funds your brokerage offers. Link your brokerage account to your bank account and transfer funds to buy your mutual fund.</p><p>If there is a specific brand of mutual fund you prefer, such as Vanguard or Fidelity, you should consider opening your account with that brokerage, as most brokers don't charge fees for buying and selling their own mutual funds. </p><p>Some brokers have a large list of mutual funds you can trade for free. Other trades will incur a fee.</p><h3>2. Research the mutual fund you want to buy</h3><p>With over 9,500 registered mutual funds, you have a bit of a task ahead of you. Luckily, there are a few tools and tricks you can use to zero in on what's best for your goals. </p><p>Look at the research section of your brokerage account for <a href="https://markets.businessinsider.com/funds">general information on mutual funds</a>. Use a mutual fund screener to create a shortlist of potential investments based on things like fees, allocations, assets classes, and other criteria.</p><p>Take a serious look at the recurring fees, called the expense ratio, as well as any buying or selling fees, called load fees. </p><p>Funds may also be <a href="https://markets.businessinsider.com/news/stocks/morningstar-to-enhance-forward-looking-fund-ratings-1028334735">rated by agencies like Morningstar</a> or your brokerage, which gives you a good second opinion before buying.</p><h3>3. Open your broker's trading website or app</h3><p>Once you've done your research and are sure of your investment, make a note of the name and ticker symbol for the mutual fund. </p><p>One of the largest funds in the US is the <a href="https://investor.vanguard.com/mutual-funds/profile/VTSAX">Vanguard Total Stock Market Index Fund with the symbol VTSAX</a>. We'll use that as an example below in an account at <a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.142409529&amp;foc=1&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_mutual_funds" rel="nofollow">Ally Invest</a>.</p><p><a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.142409529&amp;foc=1&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_mutual_funds" rel="nofollow"><em><strong>Open an Ally Invest account today and start investing in mutual funds »</strong></em></a></p><p>In the trading tool, enter the ticker symbol. You can generally buy mutual funds in round dollar amounts. Most funds have a minimum investment amount. For VTSAX, that is $10,000. This makes <a href="https://markets.businessinsider.com/etfs">exchange-traded funds</a> (ETFs), which have no minimum but work similarly to mutual funds, a more viable option for newer investors.</p><h3>4. Wait for the trade to execute</h3><p>Mutual fund trades are not instant. Unlike ETFs, mutual funds won't go through right away. All mutual fund trades happen once per day after the market closes. Mutual funds recalculate asset values daily and trades are based on that asset value, which posts daily around 6:00 PM Eastern.</p><p>Once the trade goes through, you should see it in your investment account. The value will update daily going forward.</p><h3>5. Check in with your portfolio</h3><p>Most people shouldn't check on their portfolios every day. Many mutual funds require a minimum investment period to sell without fees, so <a href="https://www.businessinsider.com/financial-advisor-for-wealthy-investing-in-retirement-advice">mutual funds are really for longer-term investments</a>. </p><p>It doesn't matter what the markets do in a week, a month, or a year for many mutual funds. What matters is the results of decades of investing.</p><p>Mutual funds are a great investment choice for millions of people, just make sure you understand the risks and costs. Like most other investments, the value of mutual funds can go down. Always invest with caution.</p><h3>More coverage from <a href="https://www.businessinsider.com/category/personal-finance-how-to">How to Do Everything: Money</a></h3><ul><li><h3><a href="https://www.businessinsider.com/what-is-buy-and-hold-investing-strategy">What is buy-and-hold investing?</a></h3></li><li><h3><a href="https://www.businessinsider.com/what-is-a-brokerage-account-first-step-towards-investing">What is a brokerage account?</a></h3></li><li><h3><a href="https://www.businessinsider.com/how-to-invest-in-stocks-beginners-guide">How to invest in stocks</a></h3></li><li><h3><a href="https://www.businessinsider.com/why-invest-stock-market">Why invest in the stock market</a></h3></li></ul><p style="font-size:14px;"><em>Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.<em></em></em></p>

How to invest in mutual funds and grow your money for retirement, a bucket-list trip, or any other long-term goal

<ul class="summary-list"><li>A mutual fund is a portfolio of investments that pools money from investors to purchase stocks, bonds, or other securities. </li><li>The majority of <keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds">mutual funds</keyword> are professionally managed with the aim to outperform the market.</li><li>Though they come with fees, mutual funds can add value to your portfolio by offering professional management and diversification.</li></ul><p>A mutual fund is a type of investment vehicle that pools money from many investors to purchase <a href="https://www.businessinsider.com/what-is-stock" target="_blank" rel="noopener">stocks</a>, <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, or other securities. Investors who<em> mutually</em> contribute to the fund company become part owners of the fund's portfolio and the income it generates or loses. </p><p>"Mutual funds are an easy and well-established way to give everyday investors <a href="https://www.businessinsider.com/what-is-diversification" target="_blank" rel="noopener">diversification</a>," says <a href="https://www.schwab.com/schwab-experts/michael-iachini" target="_blank" rel="noopener">Michael Iachini</a>, vice president and head of manager research for Charles Schwab Investment Advisory. "They are well established since the 1920s, and they have a track record of working for investors."</p><p>While mutual funds have been around for decades, investors are increasingly becoming hip to their benefits. In 2020, 45.7% of US households owned mutual funds, compared to just 5.7% in 1980 according to an <a href="https://www.ici.org/viewpoints/21_view_mfownership" target="_blank" rel="noopener">Investment Company Institute (ICI) survey</a>. </p><p>Here's what to know about mutual funds, including how they work, what to watch out for, and how to get started investing in them. </p><h2><strong>How do mutual funds work?</strong></h2><p>Generally, mutual funds are actively managed by a fund manager who controls when to buy and sell securities in order to maximize returns and minimize losses. When you buy a mutual fund, you're buying partial ownership of the fund and its assets, meaning its entire portfolio of investments.</p><p>This differs from buying an individual stock, where you buy partial ownership directly in a company and manage any subsequent moves yourself (unless you have a financial manager). </p><p>The price of a mutual fund is determined by its net asset value (NAV), which takes all of the portfolio's securities into account. It is found by dividing the total value of the fund's assets (cash and securities) by the number of the fund's outstanding shares. </p><p>Since a mutual fund's portfolio consists of many securities that change price throughout the day, the NAV is calculated at the end of the market day. Because of this, mutual funds trade only once per day, <a href="https://www.businessinsider.com/stock-market-hours" target="_blank" rel="noopener">after the markets close</a>.</p><p><strong>Example:</strong> Let's say you want to put $2,000 toward a mutual fund. If the fund's NAV is $20, you're able to purchase 100 shares - not counting fees. Along with other investors' contributions, that $2,000 would then be used by the fund manager to make trades with the goal of outperforming the market.</p><h3><strong>Mutual fund fees</strong></h3><p>You should be aware that mutual funds come with structured fees for active management, which eat into your total profits. A mutual fund will label fees into two main categories:</p><ul><li><strong>Annual fund operating expenses: </strong>A fund's total annual operating expenses include management and transaction fees, which are expressed collectively as <a href="https://www.businessinsider.com/what-is-expense-ratio" target="_blank" rel="noopener">the fund's expense ratio</a>. While relatively small, expense ratios can significantly affect a fund's return, especially over time.</li></ul><ul><li><strong>Shareholder fees: </strong>A fund can also come with shareholder fees, which cover commissions regarding buying and selling the fund. Most mutual funds will have a sales charge called a "load," which can be a flat fee or a commission, and occur when you purchase or sell your shares back to the fund. </li></ul><p>If you're in the market for a mutual fund, its fees are an important factor to consider. You can find all associated fees outlined in detail in the <a href="https://www.businessinsider.com/prospectus" target="_blank" rel="noopener">fund's prospectus</a>.</p><h3><strong>How to make money investing in mutual funds</strong></h3><p>You can make money on mutual funds in a few different ways:</p><ul><li><a href="https://www.businessinsider.com/what-is-a-dividend" target="_blank" rel="noopener"><strong>Dividend payments </strong></a><strong>:</strong> Similar to stocks, a mutual fund can pay out dividends to its investors periodically. They can choose to receive these payouts as cash or to reinvest them in your account.</li><li><a href="https://www.businessinsider.com/what-are-capital-gains" target="_blank" rel="noopener"><strong>Capital gains</strong></a><strong> :</strong> When an investor sells a fund at a profit, that's known as a capital gain. This gain gets passed off to a fund's shareholders annually.</li><li><strong>NAV:</strong> If your mutual fund's value increases, the price to purchase its shares will also increase. This benefits you if you choose to sell your shares since you would sell at a gain. </li></ul><p><strong>Quick tip: </strong>When looking at NAV, you want to follow how a fund's value changes over time, rather than comparing one fund's value to another in a single day.</p><h2><strong>What are the pros and cons of mutual funds?</strong></h2><p>Before you add mutual funds to your portfolio, there are advantages and disadvantages that can help you decide whether they are the right fit for your investment style and goals. </p><h3><strong>Pros</strong><strong><br /></strong></h3><ul><li>Offers simplicity and peace of mind with professional fund managers.</li><li>Typically requires a small minimum investment to buy in.</li><li>Adds diversification to your portfolio with various asset classes and industries held in one fund.</li><li>Ability to invest with exact dollar amounts versus buying shares of stocks at fluctuating prices.</li></ul><h3><strong>Cons</strong><strong><br /></strong></h3><ul><li>Professional management fees can be costly. </li><li>Mutual funds are not insured by the Federal Deposit Insurance Corporation (FDIC), so there is the risk of losing money.</li><li>There's a chance of dilution decreasing the worth of your shares when a successful mutual fund grows too big.</li><li>You have no control over a fund manager's decisions, which can trigger tax implications like capital gains that add to your taxable income.</li><li>Since mutual funds trade after <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> close, they don't allow for trading during the day and taking immediate advantage of market movements.</li></ul><h2><strong>Types of mutual funds</strong></h2><p>Mutual funds aren't homogenous. They are classified into many different types, including the securities they invest in and the investment goals they seek to achieve. Here are seven of the major types:</p><h3><strong>1. Equity funds</strong></h3><p>Equity funds invest mostly in stocks and are often categorized by company size and <a href="https://www.businessinsider.com/what-is-market-cap" target="_blank" rel="noopener">market capitalization</a>. Equity funds can be labeled as growth, value, or blended funds. Growth funds hold shares of companies with potential to outperform the overall market, while value funds are filled with stocks of seemingly undervalued companies. Blended funds mix both growth and value stocks.</p><h3><strong>2. Bond funds</strong></h3><p>Bond funds pool investors' money to primarily purchase <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, from short- to long-term maturities. Some funds include a range of securities including government bonds, corporate bonds, and mortgage-backed securities, while others may focus on a specific part of the bond market.</p><p>Bond funds provide quick diversification without buying various bonds individually. Many funds also distribute dividends each month, which you can reinvest. </p><h3><strong>3. Money market funds</strong></h3><p>Money market funds are fixed-income mutual funds that invest in short-term debt securities with low credit risk. These funds aim to provide <a href="https://www.businessinsider.com/what-is-liquidity" target="_blank" rel="noopener">liquidity</a>, maintain a stable share price, and distribute regular income earned on its securities to its investors. </p><p>Money market funds are categorized as government, prime, or tax-exempt, depending on the securities held within the fund. Securities often invested in money market funds include short-term US Treasury securities, federal agency notes, certificates of deposit, corporate commercial paper, and municipal agency obligations. </p><h3><strong>4. Balanced funds</strong></h3><p>Balanced mutual funds invest in both bonds and stocks, so you get the best of both worlds with steady income and investment growth. Also known as asset allocation funds, these funds typically stick to their original asset mix. If any changes are made, the funds are automatically rebalanced to bring them back to the original allocation.</p><h3><strong>5. Index funds</strong></h3><p><a href="https://www.businessinsider.com/what-is-an-index-fund" target="_blank" rel="noopener">Index funds</a> are a type of mutual fund designed to mirror the performance of a particular market index, like the <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">S&amp;P 500</a> or the <a href="https://www.businessinsider.com/what-is-dow-jones" target="_blank" rel="noopener">Dow Jones Industrial Average</a>. Because index funds are built to match the performance of the target index, they are passively managed investments. This means they require less research and trading from the fund manager, so there are fewer fees and expenses. </p><p>It's important to note that while an index fund can be structured as a mutual fund, it can also be an <a href="https://www.businessinsider.com/personal-finance/what-is-an-etf-exchange-traded-fund" target="_blank" rel="noopener">exchange-traded fund </a>(ETF). Index funds are especially favored by investors because they are a low-risk, low-maintenance, low-cost way to see steady returns over time. </p><h3>6. Specialty funds</h3><p>Specialty funds, or sector funds, concentrate on securities within a specific industry or market sector, such as real estate, technology, or healthcare. Examples of specialty funds include real estate mutual funds, which invests in <a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">REITs</a> and other real estate-related investments. Because specialty funds are focused on specific sectors like health care and technology, they aren't diverse so you'll want to mix these in with other types of funds and assets. </p><h3>7. Target-date funds</h3><p>Target-date funds operate with a specific goal date in mind. These funds automatically rebalance the asset mix within their portfolio over time and become more risk-averse as the target date nears. Target-date funds are popular for retirement savings since you can set your retirement date as the target, and let the fund adjust for you.</p><h2><strong>How to start investing in mutual funds</strong></h2><p>You likely have already invested in mutual funds if you have a <a href="https://www.businessinsider.com/what-is-a-401k" target="_blank" rel="noopener">401(k) retirement account</a>. But if you want to <a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-mutual-funds-step-by-step-guide" target="_blank" rel="noopener">start investing in mutual funds</a> outside of employer-sponsored accounts, you can buy and sell them through an online broker with a brokerage account. </p><p>You can also buy mutual funds directly from the company that created the fund, like Vanguard or Fidelity, although that limits your options to whatever they offer. If you need more guidance with your investments, you could consider working with a financial advisor or broker.</p><p>Each fund and each brokerage account may require a specific minimum investment amount to get started. "You typically don't need a lot of money in a mutual fund," says Iachini. "At least have $100 saved up. Once you've chosen a fund, look at its asset class, expense ratio, investment objective, whether that's income, growth, or intentionally trying to be conservative, and who is managing the fund." </p><p>It helps to ask yourself a few questions to help narrow down your options. How involved in rebalancing your asset allocation do you want to be? What are you saving for? What do you value? For example, if you're saving for retirement, you'll want to look to target-date funds. Or perhaps you want to look for <a href="https://www.businessinsider.com/esg-investing" target="_blank" rel="noopener">ESG funds that invest in socially conscious companies</a>.</p><h2><strong>The financial takeaway</strong></h2><p>Mutual funds are popular among investment experts for the easy diversification they bring to investment portfolios. If you're looking to invest in mutual funds, just make sure to keep an eye on costs, since actively managed mutual funds can eat into your profits with expense ratios and commissions. Beginner investors may be better off choosing index funds over actively managed funds to snag earnings without a big price tag. </p><a data-type="5dee79d5fd9db265fd2bf528">How to invest in mutual funds and grow your money for retirement, a bucket-list trip, or any other long-term goal</a><a data-type="5f5a55530afbe75a2409da00">ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed and taxed</a><a data-type="5ebd93814dca680fe75f6785">An ETF is a type of investment that's easy to purchase and requires little management</a><a data-type="5d03c1066fc92021fc090e21">How to invest in index funds to build long-term wealth</a>

What are mutual funds? What to know to start investing

<ul class="summary-list"><li>ETFs (exchange-traded funds) and <keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds">mutual funds</keyword> offer cost-efficient ways to diversify, but they differ in how they’re taxed, traded, and managed.</li><li>ETFs are typically passively managed and trade like stocks, with lower fees and minimums than mutual funds.</li><li>Mutual funds are professionally managed investment portfolios that trade once a day and are preferred by 401(k) plans.</li></ul><p>ETFs, or exchange-traded funds, and mutual funds have a lot in common. </p><p>Both investment products pool investors' money into a collection of assets — typically stocks, but can be other assets like bonds, real estate, and commodities. Geared towards individuals, both offer a low-cost, diversified way to invest. </p><p>But ETFs and mutual funds also hold important differences, especially in the way they're traded and managed, and what they charge and how they're taxed. </p><h2>What is a mutual fund?</h2><p>A <a href="https://markets.businessinsider.com/funds" target="_blank" rel="noopener">mutual fund</a> is a group of assets like stocks or bonds that you can purchase by pooling money with other investors. They are run by a professional portfolio manager who selects the fund based on a published investing strategy, so all the investors (and regulatory bodies like the SEC) know what they're getting when they invest. </p><p>As of 2019, there are nearly <a href="https://www.statista.com/topics/1441/mutual-funds/#:~:text=In%20the%20United%20States%2C%20there,the%20United%20States%20in%202018." target="_blank" rel="noopener">8,000 US-based mutual funds</a> with total assets worth a staggering $21.3 trillion, according to Statista.</p><p>Mutual funds offer plenty of benefits, from their affordability to the fact that professionals do the research for you. They also help diversify risk: You buy a fund with many different assets to avoid getting burned if any individual asset loses its value. Mutual funds are intended to be long-term, buy-and-hold investments.</p><h2>What is an <keyword id="6357062" type="DEFINITION" weightage="60" keywordseo="ETF">ETF</keyword>?</h2><p>Like a mutual fund, <a href="https://www.businessinsider.com/personal-finance/what-is-an-etf-exchange-traded-fund" target="_blank" rel="noopener">an ETF is an investment vehicle</a> that combines money from many investors into a pool to invest in stocks, bonds, and other assets. </p><p>Developed in the mid-'90s, ETFs are younger than mutual funds, but their number has exploded over the last 10 years. As of 2019, there are <a href="https://www.statista.com/statistics/350525/number-etfs-usa/" target="_blank" rel="noopener">over 2,000 ETFs</a> based in the US, with approximately $3.4 trillion in assets. </p><p>Unlike mutual funds, however, ETFs trade daily on stock exchanges — which means that they can be turned over early and often, though they are also suited to a long-term investment strategy.</p><p>If the aim of mutual funds is to beat the market, the aim of ETFs is often to follow the market. The majority of ETFs are index funds, meaning their portfolios mirror the holdings of a particular segment of the stock, bond, or commodity markets, be it a general one like the S&amp;P 500, or a highly specific one, like biotech. </p><h2>The main differences between ETFs and mutual funds</h2><p>The diversification that ETFs offer makes them very similar to mutual funds. But when figuring out which is right for you, there are a few key differences worth knowing.</p><h3>1. ETFs and mutual funds are sold differently</h3><p>If you have a brokerage account, either at a traditional full-priced broker, a discount broker, or an online trading app, you can buy and sell ETFs. You may have to pay broker fees per transaction, which can add up if you're buying small quantities often. </p><p>In contrast, you buy a mutual fund either through a brokerage or through the investment company that owns and manages it. Time was when these investment companies wouldn't offer funds from other firms, only their own (does a Nike store sell Reeboks?). But over the last 10 years, as they've evolved into "financial services providers," some of the larger players — think <keyword id="174755" type="COMPANY" weightage="60" keywordseo="Vanguard">Vanguard</keyword> or Fidelity — have started offering other fund families, too.</p><h3>2. ETFs and mutual funds are priced differently</h3><p>Mutual funds set their prices only once a day after the markets have closed. The price of a mutual fund share is technically known as the net asset value (NAV) since it represents the combined worth of the entire portfolio, not just a particular holding. </p><p><a href="https://markets.businessinsider.com/etfs" target="_blank" rel="noopener">ETF share prices </a>are like any stock share price: continually changing throughout the day, based on buying and selling in the market. So they can be more volatile than mutual funds.</p><h3>3. Mutual funds are actively managed, while ETFs are typically passively managed</h3><p>For the last couple of decades, mutual funds have offered active money management: financial pros — fund managers, backed by analysts — who pick and choose investments, trying to deliver market-beating returns. And ETFs have been the vehicle of choice for passive, auto-pilot investing — following an index or other group of assets, on the grounds that nothing outperforms the market overall. </p><p>Recently that dichotomy has changed somewhat: You can find many actively managed ETFs, and if you want passively managed mutual funds, you can find those too.</p><p>However, ETFs remain the darlings of robo-advisers and automated trading platforms. If you have an online investment account, like one from Betterment, Merrill Edge, or Vanguard Digital Advisor, odds are it's investing your money in index ETFs.</p><h3>4. ETFs are cheaper than mutual funds</h3><p>Mutual funds are generally more expensive than ETFs. They require more human power to operate, which means they charge larger fees to pay their managers and commissions to pay salespeople. </p><p>While they're spending less money on marketing than they have in the past, many funds still charge sales commissions called "loads." Other fees include redemption fees, exchange fees, account fees, and management fees. </p><p>For example, in regards to equity mutual funds, the average <keyword id="162921" type="PERSON" weightage="60" keywordseo="expense-ratio">expense ratio</keyword> — as these fees are collectively called — is 1.24%, <a href="https://www.ici.org/pdf/per26-05.pdf" target="_blank" rel="noopener">according to the Investment Company Institute</a> (ICI). All these fees add up and cut into the total return of the fund.</p><p>With ETFs the only commission you pay is to your broker, and since 2018 many brokers have waived transaction fees and commissions.</p><p>Because they're so often passively managed, ETFs generally have lower expense ratios, as low as 0.03% The average is 0.49%, <a href="https://www.ici.org/pdf/per26-01.pdf" target="_blank" rel="noopener">according to the ICI</a>.</p><h3>5. Mutual funds have higher minimums</h3><p>Mutual funds generally demand a minimum investment, ranging from a few hundred dollars to four — or even five figures. </p><p>With ETFs, there is no minimum investment, and the price is whatever a single share costs on the exchange at that time.</p><h3>6. ETFs have tax advantages </h3><p>ETFs are a little more tax-friendly than mutual funds, which also brings down the total cost of owning them. When a mutual fund manager sells an asset for a profit, the holders of the fund are liable for a portion of the capital gain on that sale, even if they still own the fund itself. </p><p>Because the buying and selling that regulates the price of the ETF is done by outside parties ("authorized participants" in investment lingo) and not the fund itself, holders of ETF shares are not liable for capital gains unless they personally sell their shares at a profit.</p><h3>7. Retirement plans prefer mutual funds </h3><p>When you have an employer-sponsored 401(k) or a 403(b) plan account, you're restricted to the funds offered by the plan manager. Those offerings overwhelmingly remain mutual funds. </p><p>Although they technically can offer ETFs, many plans shy away from them due to compliance issues: Actively traded ETFs can come perilously close to being considered speculative investments, which are frowned on for retirement accounts. This is particularly true of 403(b) plans, which have more strict rules about what kinds of investments they can make.</p><h3>8. You can unload ETFs faster</h3><p>Mutual funds being priced only once a day, at the end of the day, makes it hard to get your money out quickly — because you see the price of its underlying assets falling, for example. </p><p>In contrast, you can sell an ETF any time during the trading day, like any stock. Of course, because they're so easy to buy and sell, you could be more likely to make a bad, emotionally driven move. </p><h2>The financial takeaway</h2><p>While they're both geared to individual investors, ETFs have become popular since the turn of the 21<sup>st</sup> century as a low-cost alternative to mutual funds. ETFs charge lower fees and have no minimum investment (other than the price of a single share).</p><p>Still, outnumbering ETFs as they do, mutual funds offer more variety, and a chance to outperform the market. </p><p>For investors who are saving for retirement, especially in an employee-sponsored 401(k) plan, mutual funds may be the best investment. For DIY investors, especially those who prefer to operate via an app or online, ETFs may offer the edge.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-mutual-funds-step-by-step-guide" target="_blank" rel="noopener">How to invest in mutual funds and grow your money for retirement, a bucket-list trip, or any other long-term goal</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/what-is-an-etf-exchange-traded-fund" target="_blank" rel="noopener">An ETF is a type of investment that's easy to purchase and requires little management</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-index-funds-explained" target="_blank" rel="noopener">How to invest in index funds to build long-term wealth</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/warren-buffett-recommends-index-funds-for-most-investors" target="_blank" rel="noopener">Warren Buffett thinks index funds are the best way for everyday investors to grow their money</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-a-401k-for-retirement" target="_blank" rel="noopener">Experts say your office 401(k) is the best place to start investing. Here's how it works.</a></h3>

ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed and taxed. Here's what you should know.

Table of Contents: Masthead Sticky<ul class="summary-list"><li>You can start investing in <keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds" source="Orion">mutual funds</keyword> through goal planning and choosing between active or passive investing strategy.</li><li>Mutual funds are typically actively managed, but there are passive mutual funds like index funds.</li><li>When you invest in mutual funds be aware of sales loads and expense ratios fees, which can add up.</li></ul><p>Investing your money can help you turn one dollar into many more, giving you the ability to build wealth without having to work harder. Thanks to compound interest and a variety of investment vehicles, you can decide where to put your money. </p><p>One type of investment vehicle that can help diversify your money is a <a href="https://www.businessinsider.com/mutual-funds" target="_blank" rel="noopener">mutual fund</a>, which gets money from investors and pools it together into a fund. These funds invest in various securities like <a href="https://www.businessinsider.com/what-is-stock" target="_blank" rel="noopener">stocks</a>, <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, and short-term debt. Mutual funds are often actively managed, but not always. </p><p>Here's how to get started investing in mutual funds. </p><h2><strong>Step 1: Look at your finances and goals</strong></h2><p>Before you get started with investing in mutual funds, it's important to first review your current income, expenses, monthly debt obligations, and <a href="https://www.businessinsider.com/what-is-net-worth" target="_blank" rel="noopener">net worth</a> to see where you're at financially. </p><p>You wouldn't build a house without laying a proper foundation - and the same goes with your finances. Having an emergency fund and manageable debt are important if you want to invest. Why? Because investing is risky, no matter how you look at it. There are ways to minimize your risk by figuring out your risk tolerance, but it's crucial you have that financial foundation and safety net set up. </p><p>Knowing where your finances are at now can inform how much you can afford to invest and what your asset allocation should be based on your risk tolerance. </p><p>On top of that, consider your short- and long-term goals when investing, too. Will this be used for a down payment in five years? Or for your retirement in 30 years? Knowing your goals and having a rough timeline can ensure that you stay on track and know why you're investing in the first place. </p><h2><strong>Step 2: Research types of mutual funds </strong></h2><p>According to the <a href="https://www.businessinsider.com/securities-and-exchange-commission" target="_blank" rel="noopener">Securities and Exchange Commission</a> (SEC), a mutual fund is an open-end investment company that is registered with the SEC and gathers money together from various investors to put into asset classes like stocks, bonds, and more. </p><p>When you invest in mutual funds, you end up purchasing shares of the mutual fund that reflects partial ownership of the total portfolio. </p><p>"Mutual funds are baskets of various stocks with a common theme behind them, such as 'US Equities Growth Fund' or 'Sustainable Developed Markets Fund.' They usually have a net asset value, which is determined once per day, unlike stock prices that fluctuate during the day in the markets," explains Gary Grewal, a Certified Financial Planner and author of "<a href="https://www.financialfives.com/" target="_blank" rel="noopener">Financial Fives: The Top 325 Ways to Save, Earn, and Thrive to Retire Before 65</a>." </p><p>There are many different types of mutual funds that you can invest in:</p><ul><li><strong>Stock funds</strong>: These invest in a company's stock. There are some nuances within stock funds, including those that focus on investing in a company's stock, growth-focused stocks based on financial returns, income-focused stocks that produce <a href="https://www.businessinsider.com/ex-dividend-date" target="_blank" rel="noopener">dividend payouts</a>, stock funds based on certain sectors, as well as index funds that track specific indexes and seek to produce similar results. </li><li><strong>Bond funds</strong>: This is a type of investment company that's focused investing in bonds and debt securities. The risk related to bonds can differ depending on the bond. As an investor, <a href="https://www.sec.gov/reportspubs/investor-publications/investorpubsinwsmfhtm.html" target="_blank" rel="noopener">the SEC recommends</a> that you consider the credit risk if the bond issuer fails to pay back debt, how interest rate fluctuations will affect the value of a bond fund, as well as prepayment risk and what will happen if the bond issuer pays back the bond earlier than anticipated. </li><li><strong>Money market funds</strong>: These have the least risk and invest only in particular investments that are issued by the US government or corporations. </li><li><strong>Target-date funds</strong>: These contain a combination of stocks and bonds that aim to help you retire by a certain date, called target-date funds. They can also be referred to as lifecycle funds as well. The asset allocation will shift over time depending on the overall goal. </li></ul><p>In many cases, mutual funds are actively managed by an investment professional. But it's possible to invest passively in mutual funds as well, typically called an index fund. Also: mutual funds can be index funds - and vice versa. </p><p>Actively managed mutual funds work with a professional manager whose main goal is to help you beat the market. They do much of the heavy lifting when it comes to choosing securities to invest in and review the performance. </p><p>Passively managed funds like index funds have an objective to match the results of a particular index and don't have a professional manager. As such, it's a <a href="https://www.businessinsider.com/passive-investing" target="_blank" rel="noopener">passive</a> way to invest as there's no outside help. No outside help typically means lowers costs. </p><p>In order to diversify your investments, you'll want to invest in various types of mutual funds and not just one type in a specific sector. </p><p><strong>Quick tip: </strong>Target date funds are easily recognizable as they typically include the target date, such as the <a href="https://fundresearch.fidelity.com/mutual-funds/summary/315792416" target="_blank" rel="noopener">Fidelity Freedom 2050 Fund. </a></p><h2><strong>Step 3: Choose a passive or active strategy </strong></h2><p>After researching the various types of mutual funds out there, you want to be clear about whether you want to have a passive or active strategy. </p><p>Actively managed mutual funds are costlier, as they are rife with fees, can take a chunk out of your investments, and may also lead to tax events. </p><p>For example, there may be mutual fund distributions that you need to report and pay taxes on. When you invest in mutual funds, you can get capital gains distributions as well as dividend payments. This could be a good thing, but there may also be tax implications. </p><p>Depending on what your mutual fund manager does, it could lead to higher taxes because of the difference in holdings. </p><p>When you sell an asset, you're expected to pay <a href="https://www.businessinsider.com/what-are-capital-gains" target="_blank" rel="noopener">capital gains taxes</a> if you hold the asset for longer than a year and there is an increase in value. If you hold it less than that, you'll be taxed at the ordinary income rate, which is higher (which can be up to 37% compared to 20%). </p><p>Passively managed mutual funds, such as index funds, seek to replicate market returns of a particular index, such as the ever-popular <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">S&amp;P 500</a>. They are more affordable for investors since there are lower fees as there's not an entity that is managing the investment, as you're managing it yourself. </p><p>"Active funds typically come with higher expense ratios and may even come with a sales charge. Active means there are human portfolio managers whose job is to manage the investments within the mutual fund to try and beat the market," explains Grewal. </p><p>In many cases, actively managed funds <a href="https://www.sec.gov/reportspubs/investor-publications/investorpubsinwsmfhtm.html" target="_blank" rel="noopener">don't actually outperform passively managed funds</a> in the long run. </p><p>"Multiple studies have shown over time it's very hard to beat the market, so passive funds such as those that track the S&amp;P 500 Index may be a better choice for those concerned about fees, as passive funds have expense ratios that are typically much lower than their active counterparts," says Grewal.</p><p>To consider the impact and costs you can use the <a href="https://tools.finra.org/fund_analyzer/" target="_blank" rel="noopener">Fund Analyzer tool</a> by the <a href="https://www.businessinsider.com/finra" target="_blank" rel="noopener">Financial Industry Regulatory Authority</a>, or FINRA. You can also look at the mutual fund's <a href="https://www.businessinsider.com/prospectus" target="_blank" rel="noopener">prospectus</a> to get a breakdown of fees, risks, and overall performance. For both active and passive mutual funds, you also want to consider the <a href="https://www.businessinsider.com/what-is-expense-ratio" target="_blank" rel="noopener">expense ratio</a>, which includes costs related to managing your account. </p><h2><strong>Step 4: Invest in mutual funds </strong></h2><p>After researching types of mutual funds and choosing a strategy, you want to get started investing in mutual funds. </p><p>"One can easily invest in mutual funds via their workplace retirement plan, IRA, or opening a brokerage account through Fidelity, Schwab, and Vanguard," notes Grewal.</p><p>When you invest in mutual funds, you purchase shares from a <a href="https://www.businessinsider.com/what-is-a-brokerage-account" target="_blank" rel="noopener">brokerage</a> or from the actual fund. How much you end up paying will vary based on the sales charge or sales load as well as the fund's net asset value per share. You may be able to invest in mutual funds that don't have a sales load associated with them as well.</p>Related Article Module: The best online brokerages for investors of all kinds, from kids to pros<p>To get started, choose a brokerage or company to invest in mutual funds. You can check out some popular options such as <a href="https://www.businessinsider.com/personal-finance/fidelity-investments-review" target="_blank" rel="noopener">Fidelity</a>, <a href="https://www.businessinsider.com/personal-finance/vanguard-investing-review" target="_blank" rel="noopener">Vanguard</a>, <a href="https://www.businessinsider.com/personal-finance/charles-schwab-brokerage-account-review" target="_blank" rel="noopener">Charles Schwab</a>, and <a href="https://www.businessinsider.com/personal-finance/etrade-investing-review" target="_blank" rel="noopener">Etrade</a>. Before opening an account, be sure to review the prospectus and any fine print and also consider:</p><ul><li>Any account minimums required</li><li>Usability of website and mobile app options</li><li>Funds that are available</li><li>Total costs such as sales load and expense ratio</li></ul><p>After you open an account with a brokerage, deposit money into the account and then select the mutual fund you want to buy and purchase shares. Create a plan to add funds on a regular basis, such as each month, and review your performance as you go to see if any changes should be made. </p><p><strong>Quick tip:</strong> Make sure to do some research to better understand how your various mutual fund types relate to your goals and time horizon. Focusing too much on stock funds for a short-term goal may not be the best idea. </p><h2><strong>The financial takeaway</strong></h2><p>If you want to get started investing in mutual funds, the main things to be aware of are active versus passive strategies and the costs that can come with each choice. Your choice will determine how much you pay and also if you take a hands-on or hands-off approach. </p><p>Investing in mutual funds can be an easy way to diversify your portfolio and also offer a straightforward redemption process if you want to redeem your shares.</p><a data-type="613a2035b0b35f5c695cf174">5-step beginner's guide to investing in index funds</a><a data-type="6149f6636bf54a3a6e5d45a2">A CFP is an advisor armed with extensive education and ethical standards to help you manage your money</a><a data-type="61489feb0c828c3fa9191f4a">Understanding what qualified dividends are why they're taxed at lower rates</a><a data-type="5fc16917647950767646fd31">How to invest in dividend stocks, a low-risk source of investment income</a>

Start investing in mutual funds in 4 steps

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Johner Images/Getty Images</span></p><p class="caption">If you want to retire early as a millionaire, you need to plan for "the bridge period."</p></div><p></p></div></div></p><ul class="summary-list"><li><a href="https://www.businessinsider.com/category/millionaires" target="_blank" rel="noopener">Future millionaires</a> who want to <a href="https://www.businessinsider.com/category/early-retirement?page=2" target="_blank" rel="noopener">retire early</a> often forget to plan for "the bridge period," according to an author who surveyed 10,000 American millionaires.</li><li><span>The bridge period is the time between leaving work and when you're able to withdraw funds from <a href="https://www.businessinsider.com/how-to-invest-early-retire-a-millionaire-2018-7" target="_blank" rel="noopener">retirement accounts</a>.</span></li><li><span>If you withdraw from a <a href="https://www.businessinsider.com/retire-millionaire-build-wealth-financial-strategies-20s-30s-40s-50s-2019-1" target="_blank" rel="noopener">retirement account</a> before age 59 1/2, you could incur a penalty.</span></li><li><span>Experts say you can avoid this by investing in a growth stock mutual fund or creating a <a href="https://www.businessinsider.com/early-retirement-playbook-from-26-year-old-2016-9#-2" target="_blank" rel="noopener">Roth IRA conversion ladder</a>.</span></li></ul><p>If you think you're on track to <a href="https://www.businessinsider.com/millennial-passive-income-early-retirement-advice-2018-7" target="_blank" rel="noopener">retiring early</a> as a millionaire, make sure you don't make the same mistake that some aspiring early retirees do.</p><p>"One thing that often gets overlooked by a lot of future millionaires is the bridge period," wrote <a href="https://www.businessinsider.com/category/everyday-millionaires" target="_blank" rel="noopener">Chris Hogan</a> in his book,<span>"</span><a href="https://www.amazon.com/Everyday-Millionaires-Ordinary-Extraordinary-Wealth_and/dp/0977489523?tag=bisafetynet2-20" target="_blank" rel="noopener">Everyday Millionaires: How Ordinary People Built Extraordinary Wealth - and How You Can Too</a>.<span>" </span></p><p><span>The bridge period, he said, refers to the time between leaving work and when you're able to withdraw funds from retirement accounts.</span></p><p><span>In partnership with the Dave Ramsey research team, Hogan studied 10,000 American millionaires (defined as those with a <a href="https://www.businessinsider.com/category/net-worth" target="_blank" rel="noopener">net worth</a> of at least $1 million) for seven months, and found that those who decide they want to retire early need to plan a little more for the extra money they'll need to cover their bridge years.</span></p><p><span>"Let's say you want to retire at 55. That's great - but only if you've planned for it," Hogan wrote. "You can't withdraw funds from your retirement accounts without incurring a penalty until you're age 59 1/2, so, in this example, you'll need about four-and-a-half years of investment savings outside of your retirement accounts to live on."</span></p><p><span>"If all your money is in IRAs and 401(k)s, not only will you pay state and federal income tax when you take it out to pay your bills - after all, it has never been taxed - but you may also pay a 10% penalty for premature withdrawals," Mari Adam, a certified financial planner based in Florida who founded <a href="https://www.adamfinl.com/" target="_blank" rel="noopener">Adam Financial Associates</a>, <a href="https://www.businessinsider.com/how-much-money-you-need-to-retire-early-2018-7" target="_blank" rel="noopener">previously told Business Insider</a>.</span></p><p><em><strong>Read more</strong>: <a href="https://www.businessinsider.com/what-no-one-tells-you-about-early-retirement-2018-8" target="_blank" rel="noopener">7 things no one tells you about early retirement</a></em></p><p><span>To avoid these penalties, Hogan recommends setting money aside outside of your retirement accounts in a growth stock mutual fund.</span></p><p><span><a href="https://markets.businessinsider.com/news/stocks/how-to-invest-and-buy-stock-brokers-mutual-funds-2018-7-1027371422" target="_blank" rel="noopener">Mutual funds</a> pool together money from multiple investors and are managed by fund managers. The investor buys shares in a mutual fund - the percentage they own is the percentage of gains they're entitled to. It's a good option if you don't have the time or knowledge to choose your own investments, <a href="https://markets.businessinsider.com/news/stocks/how-to-invest-and-buy-stock-brokers-mutual-funds-2018-7-1027371422" target="_blank" rel="noopener">Business Insider previously reported</a>.</span></p><p><span>Saving and investing outside of tax-sheltered retirement plans is one of two ways you can access penalty-free money in early retirement, <a href="https://www.businessinsider.com/how-to-get-around-tax-penalties-to-retire-early-2016-11" target="_blank" rel="noopener">according to financial planner Jeff Rose</a>. The other, he said, is creating a Roth IRA conversion ladder.</span></p><h2><span>You can avoid penalties by implementing a Roth IRA conversion ladder</span></h2><p><span>You may be able to access retirement funds without penalty before age 59 1/2 by transferring money from a <a href="https://www.businessinsider.com/category/401k">401(k)</a> or traditional IRA to a <a href="https://www.businessinsider.com/category/roth-ira">Roth IRA</a>, a type of individual retirement account that's funded with after-tax money. The strategy only works if you've had the </span><span>Roth IRA for five years.</span></p><p>By transferring sums of money to your Roth IRA year after year - referred to as "climbing the ladder" - you'll have early access to your 401(k) savings throughout retirement. Y<span>ou do have to pay taxes on the money when you transfer it to the Roth IRA, but there are no taxes upon withdrawal. You also have to wait five years after the first conversion to access the money, so you must begin the process at least five years before your desired retirement age.</span></p><p>"They will have to make annual Roth IRA conversions equal to the amount of money they believe they will need in order to live comfortably in retirement," Rose said.</p><p><span>The standard retirement withdraw rate is 4% a year, meaning: a retiree should be able to withdraw 4% of their nest egg in the first year and live comfortably, adjusting for inflation each year after that. Those living by the 4% rule should be set for at least 30 years, but <a href="https://www.fool.com/retirement/2018/01/16/3-serious-problems-with-the-4-retirement-rule.aspx">the strategy isn't foolproof</a>. And some early retirees learn to live on less. Chris Reining, who retired early as a millionaire at age 37, <a href="https://www.businessinsider.com/self-made-millionaire-early-retirement-defines-rich-2018-7" target="_blank" rel="noopener">lives off 2% of his nest egg</a>.</span></p><p><em><strong>Read more</strong>: <a href="https://www.businessinsider.com/how-much-money-you-need-to-retire-early-2018-7" target="_blank" rel="noopener">How much money you need to retire early depends almost entirely on 2 factors</a></em></p><p><span>"As you plan your retirement dream, simply set a retirement age target, figure out how much money you'll need to live on, and make sure you're on track to have that much set aside for each year of your early retirement until you can access your retirement accounts without penalty," Hogan wrote. </span></p><p><span>He recommends working with both a financial and a tax professional since it can be tricky to figure out.</span></p>     <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/donald-trump-morning-ritual-ego-boost-2015-11">Michael D'Antonio reveals Donald Trump's 'strange' morning ritual that boosts his ego</a></h3>        <div>                    </div>    </div>

An author who studied over 10,000 millionaires says those planning to retire early often overlook a crucial step

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Thomson Reuters</span></p></div><p></p></div></div>Stocks finished Monday modestly lower after markets declined last week at the top of what is a busy week for Fed speakers and global central bank announcements. <a href="http://www.businessinsider.com/q1-earnings-preview-2016-4">Earnings season also gets underway this week</a>.</p><p>First, the scoreboard:</p><ul><li>Dow: 17,563, -14, (-0.1%)</li><li>S&amp;P 500: 2,042, -5, (-0.2%)</li><li>Nasdaq: 4,835, -16, (-0.3%)</li><li>WTI crude oil: $40.40, +1.7%</li></ul><h2>Negative Interest Rates</h2><p><a href="http://www.businessinsider.com/blackrocks-larry-fink-on-negative-rates-2016-4">Larry Fink is worried about negative interest rates</a>.</p><p>In his <a href="https://www.blackrock.com/corporate/en-us/investor-relations/larry-fink-chairmans-letter">latest letter to shareholders</a> published over the weekend, BlackRock CEO Fink argued that, "Not nearly enough attention has been paid to the toll these low rates - and now negative rates - are taking on the ability of investors to save and plan for the future."</p><p>Fink's basic argument is that taking interest rates into negative territory in a way sort of negates the whole project.</p><p>The US (and increasingly, the world) economy is predicated largely on consumer spending. Spending requires confidence. </p><p>So the argument goes that taking away the ability for these consumers to prudently save for retirement - negative or even low interest rates make things like money-market mutual funds effectively useless as a wealth-building tool, thus pushing investors into riskier investments potentially not suitable for either their station in life or desired goals as a saver/investor/retiree - means there will be less spending and more saving.</p><p>Which, in the aggregate, is bad for the economy.</p><p>Of course, the idea that anybody is entitled to a risk-free return of 4% or 6% or 8% per year is not really how investing works. "Hurts savers" is a great catch-all in railing against monetary policies that seem to advantage investors who had already stockpiled wealth as opposed to folks trying to build it through investing. </p><p>But a sort of weirdly accepted problem facing the US economy in the coming years is that retiring will be almost impossible for a large class of workers. </p><p>So while this broadside against monetary policies that have been aimed at stoking broad economic growth but to this point have been a mixed bag sort of veers into a more wide-ranging and less definitive discussion about what investing is and what it isn't, Fink summarizes the concerns nicely. </p><p>Here's Fink (emphasis mine):</p><p style="padding-left: 60px;">This reality has profound implications for economic growth: <strong>consumers saving for retirement need to reduce spending if they are going to reach their retirement income goals and retirees with lower incomes will need to cut consumption as well.</strong> A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.</p><h2>Mergers</h2><p>Canadian Pacific Railway <a href="http://www.businessinsider.com/canadian-pacific-is-ending-its-bid-for-norfolk-southern-2016-4">ended its bid for </a><a href="http://www.businessinsider.com/canadian-pacific-is-ending-its-bid-for-norfolk-southern-2016-4">US counterpart </a><a href="http://www.businessinsider.com/canadian-pacific-is-ending-its-bid-for-norfolk-southern-2016-4"> Norfolk Southern</a>, the firm <a href="http://www.prnewswire.com/news-releases/canadian-pacific-terminates-efforts-to-merge-with-norfolk-southern-575232121.html">announced Monday</a>.</p><p>This is the second time one of CP's proposed deals had failed in the last couple years.</p><p><span>But as <a href="http://www.businessinsider.com/canada-pacific-example-of-market-conditions-2016-4">Bob Bryan noted</a>, this deal's failure partly represents the three biggest themes playing out in markets right now.</span></p><p><span>The commodities crash has hit rail volumes and this merger seemed to be another creative way for a suffering company to make up lost revenue and earnings. Meanwhile, mergers in general have been tough to pull off with increasing pressure from the US government weighing on two big deals in recent weeks.</span></p><p><span>And of course Bill Ackman - Canadian Pacific's second-largest shareholders <a href="http://www.railwayage.com/index.php/regulatory/another-white-paper-from-canadian-pacific.html">who had been pushing for the deal</a> - can't get his way. If it's any consolation for Ackman, Canadian Pacific shares gained 3.5% on Monday.</span></p><h2>Mutual Funds</h2><p><a href="http://www.businessinsider.com/etfs-making-mutual-funds-extinct-2016-4">Mutual funds are going extinct</a>.</p><p>"It's a one-way street," Meb Faber of Cambria Investment Management told Business Insider.</p><p>"Mutual funds have so much baggage ... and are still dominated by active managers, which usually means they charge more. Once you go from a high-fee, tax-inefficient structure to a very low-fee, tax-efficient structure, you don't go back."</p><p>Enter ETFs. </p><p>Ten years ago about $230 billion was parked in exchange-traded funds - or funds that trade on exchanges like stocks and are designed to track a specific asset or group of assets - and now there is over $4 trillion in these vehicles. This is simply where the investment world is going. </p><p>Here's the chart we often trot out showing that the easiest way to improve your investing for retirement is save on fees. </p><p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost">Vanguard</a></span></p></div><p></p></div></div></p><p>We can throw out words like robo-advisor and fintech but the reality is that Faber is getting at something more elemental happening in the US investment and retirement world, which is that investors are exposed to cheaper options and, not surprisingly, taking them.</p><p>And as Faber notes, mutual funds and exchange-traded funds are just a structure. There's nothing inherently great about an ETF except that it is generally a cheaper way to bet on a certain strategy than a mutual fund. This might sound like a pitch in <em>favor</em> of mutual funds because, well, what's so special about an ETF? Nothing, of course. It's just cheaper, which is really the beginning and end of this argument. </p><p>There will always be alpha and someone will always be crushing the market somewhere. The problem is that you won't know this person exists until it's over and, as a result, unless you're the person beating the market (and if so, congrats!) your most-likely way to succeed in saving for retirement is buy the cheapest thing possible. </p><p>Again: consider the chart. </p><h2>Additionally</h2><p><a href="http://www.businessinsider.com/ben-bernanke-helicopter-drops-2016-4">BERNANKE: Helicopter money could work, but I see 2 big problems.</a></p><p><a href="http://www.businessinsider.com/netflix-has-better-programming-than-hbo-2016-4">Netflix has better shows than HBO, Morgan Stanley finds</a>. </p><p><a href="http://www.businessinsider.com/stephen-curry-reaction-to-jordan-spieth-masters-collapse-2016-4">Stephen Curry had a great reaction after learning of Jordan Spieth's meltdown at the Masters</a>.</p><p><a href="http://www.bloomberg.com/features/2016-christine-lagarde-interview/">Bloomberg talked to Christine Lagarde.</a></p><p class="mod_article_header_title"><a href="https://www.credit-suisse.com/ch/en/news-and-expertise/economy/articles/news-and-expertise/2016/04/en/can-the-world-run-without-oil.html?aa_cmp=socm_coco_tw_s00516">Can the World Run Without Oil?</a></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/rising-sea-levels-study-millions-americans-affected-coastal-counties-2016-4">4.2 million Americans could be displaced by rising sea levels this century - see if your county is at risk</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="1kMm1sMjE6AUd0dGnGrEB_C8Ni4Y-pH-" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

STOCKS GO NOWHERE: Here's what you need to know

<ul class="summary-list"><li>A <keyword id="10981755" type="UNKNOWN" weightage="60" keywordseo="unit-investment-trust">unit investment trust</keyword> (<keyword id="292912" type="ORGANIZATION" weightage="60" keywordseo="UIT">UIT</keyword>) is a type of investment fund that offers a fixed portfolio of stocks, bonds, and other assets for a set period of time. </li><li>UIT portfolios are typically fixed and not actively managed or traded.</li><li>UITs are particularly popular as diversification tools for hands-off investors and the retirement community, where stability is prized.</li></ul><p>If you've avoided mutual funds because of high management fees or how frequently they can be traded, you might benefit from a closer look at the unit investment trust, or UIT. </p><p>Like mutual funds, UITs pool investor funds to purchase a series of assets, which are then bundled and offered up as a single unit - making them great for portfolio diversification.</p><p>Unlike mutual funds, UITs are designed to be bought and held until a specific maturity date, with extremely limited trading in the meantime. Because of this, the funds tend to be particularly popular with <a href="https://www.businessinsider.com/personal-finance/what-is-buy-and-hold-investing-strategy" target="_blank" rel="noopener">buy-and-hold investors</a> where stability is more highly valued. </p><p>As of December 2020, the <a href="https://www.ici.org/research/stats/uit/uits_02_21" target="_blank" rel="noopener">Investment Company Institute</a> (ICI) reported that there were 4,310 outstanding UITs, representing $77.85 billion invested, so a booming industry awaits the interested investor.</p><h2>What is a UIT?</h2><p>A UIT is one of three basic types of <a href="https://www.investor.gov/introduction-investing/investing-basics/glossary/investment-company" target="_blank" rel="noopener">investment companies</a>. The other two types of investment companies are open-end funds and closed-end funds, which we'll cover later. </p><p>UITs offer investors a fixed portfolio that can include stocks, bonds, or other securities in the form of redeemable units. They're public investments that are bought and sold directly through the company issuing them, or through a broker working as an intermediary. Investors can redeem UITs after a set period of time passed, known as the maturity date.</p><h2>How does a UIT work?</h2><p>The goal of a UIT is that the passively held assets it contains will provide capital appreciation or <a href="https://www.businessinsider.com/what-is-a-dividend" target="_blank" rel="noopener">dividend income</a> throughout the life of the trust. And while that outcome isn't guaranteed, UITs are regulated through the Securities and Exchange Commission (SEC), so concerned investors can breathe easier. Every UIT must register through the commission, which then enforces requirements about everything from where the fund can invest to under what circumstances trades can be made.</p><p>The average UIT is typically made up of mostly stocks and bonds, but can also contain assets like mortgages, <a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">real estate investment trusts</a> (REITs), <a href="https://www.businessinsider.com/master-limited-partnership-mlp" target="_blank" rel="noopener">master limited partnerships</a> (MLPs), hybrid instruments like <a href="https://www.businessinsider.com/what-is-preferred-stock" target="_blank" rel="noopener">preferred shares</a>, and beyond. These assets are often fixed around a broad theme, like American stocks offering historically high dividends, or <a href="https://www.businessinsider.com/what-is-a-corporate-bond" target="_blank" rel="noopener">corporate bonds</a> from companies in a specific sector.</p><p>Money managers select assets for inclusion at the creation of the trust, aiming for securities they think will offer the most capital appreciation over time. They also set the maturity date for the fund, which can be anywhere between 15 months and 30 years. After that, the fund remains largely undisturbed until its maturity date.</p><p>A prosperous UIT will earn its investors income in two different ways: in the form of quarterly or monthly dividends throughout the life of a fund, and as capital appreciation when the fund matures. Once your UIT expires, you have the option of taking delivery of the underlying assets into your own brokerage account, reupping into a similar or identical trust, or liquidating your holdings, which would give you the current cash value.</p><h2>UITs vs. mutual funds </h2><p>Mutual funds and UITs are similar in that they're pooled funds overseen by a professional money manager, and are subject to SEC regulation. Here's how the two assets diverge:</p><ul><li><strong>Mutual funds are actively managed and UITs are not: </strong>The ability to buy and sell assets within a mutual fund increases the potential for <a href="https://www.businessinsider.com/what-are-capital-gains" target="_blank" rel="noopener">capital gains</a> - and, of course, losses. Since UITs don't actively trade, fees are lower, and as fixed income investments, their underlying securities do not change except in rare cases like bankruptcy or merger.</li></ul><ul><li><strong>Mutual funds and UITs structure dividends differently: </strong>While mutual funds are designed to reinvest your dividends, UIT investors can miss out during market upswings, as the latter doesn't allow for the purchase of additional shares.</li></ul><ul><li><strong>UITs have a maturity date, while mutual funds do not: </strong>Much like bonds or <a href="https://www.businessinsider.com/personal-finance/what-is-a-cd-certificate-of-deposit" target="_blank" rel="noopener">CDs</a>, UITs have defined lifespans and set metrics to hit before their expiration. This makes UITs, by their nature, a more long-term investment than mutual funds.</li><li><strong>Mutual funds and UITs offer different ways to invest: </strong>If you have the cash to invest in a mutual fund, you can purchase shares on demand, as their quantity is limitless. But since UITs have a set limit or shares released upon its initial public offering (<a href="https://www.businessinsider.com/what-is-ipo">IPO</a>), you have to invest within that window or be subject to the whims of the secondary market.</li></ul><p>Each investment type has its own limits. But by and large, the reason you'd see a portfolio organized as a UIT instead of a mutual fund is to minimize both short-term and long-term expenses. </p><p>UITs come with much lower expense ratios and also come with favorable tax terms. Because of the way <a href="https://www.irs.gov/taxtopics/tc409" target="_blank" rel="noopener">capital gains taxes are structured</a>, it's possible to lose money on a mutual fund <em>and</em> pay taxes on gains you never actually appreciated. For example, if the shares were sold right before you got your hands on them, you could find yourself with a shared tax liability for someone else's capital gains.</p><p>But that won't happen with a UIT. Because the securities are bundled when you place the order and not before, the original value - or cost basis, as it's termed - is specific to you and can't burn you down the road.</p><h2>Who should buy UITs?</h2><p>UITs have benefits to offer every investor, but they're particularly compelling for those who aren't interested in building a portfolio security by security, or who don't want to pay the high expense ratios on <a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-mutual-funds-step-by-step-guide" target="_blank" rel="noopener">actively managed mutual funds</a>. Plus, the lower buy-ins on UITs make them more accessible for newer investors or those with less capital.</p><p>UITs are also quite popular with those at or close to retirement age because they tend to be more stable investment vehicles. While UITs might not have the growth potential of a different asset class, their buy-and-hold strategy is lighter on risk as well. From the very start, you'll know exactly where you're invested, how long that investment will last, and roughly how much income you can expect from your investment, all without having to wait to pore over a prospectus. </p><p>If you're looking to join the ranks of UIT investors, these funds can be purchased directly from the issuer, or bought and sold on the stock exchange. Talk to your financial adviser about which UIT might be a match for you and your situation.</p><h2>The financial takeaway</h2><p>As an investment, UITs are a different option from mutual funds or closed-end funds that offer a winning combination of low costs, reliability, tax protection, and fairly predictable gains. </p><p>There are certain pitfalls, of course, like a lack of flexibility and a potential cap on earnings, since dividends can't be reinvested. But if you're nearing retirement or simply trying to stretch a dollar, UITs can prove to be a plum choice for the (semi) conservative investor looking to diversify their portfolio.</p><a data-type="5dee79d5fd9db265fd2bf528">How to invest in mutual funds and grow your money for retirement, a bucket-list trip, or any other long-term goal</a><a data-type="5fa1a11d19bb5e18580dbc66">Dividends are payments made by a company to its shareholders - here's how they work</a><a data-type="5f886ff851467218126c05d1">Passive investing is a long-term wealth-building strategy all investors should know - here's how it works</a><a data-type="5f52714cce3d6947b55a3bf1">REITs are a way to own real estate without becoming a landlord - here's how they work and ways to invest</a>

What is a unit investment trust? An easy way to build diversification while earning steady income

<p class="headline-regular financial-disclaimer">Our experts answer readers' investing questions and write unbiased product reviews (<a href="https://www.businessinsider.com/personal-finance/investing-rating-methodology" class="not-content-link" target="_blank">here's how we assess investing products</a>). Paid non-client promotion: In some cases, we receive a commission from <a href="https://www.businessinsider.com/personal-finance/our-partners" class="not-content-link" target="_blank">our partners</a>. Our opinions are always our own.</p><ul class="summary-list"><li>A mutual fund is a portfolio of investments that pools money from investors to purchase securities. </li><li>The majority of mutual funds are professionally managed with the aim to outperform the market.</li></ul><p>A mutual fund is a type of investment vehicle that pools money from many investors to purchase stocks, <a href="https://www.businessinsider.com/personal-finance/what-is-a-bond">bonds</a>, or other securities. Investors who mutually contribute to the fund company become part owners of the fund's portfolio and the income it generates or loses. </p><p>You can invest in mutual funds through a broker or investment platform. The <a href="https://www.businessinsider.com/personal-finance/best-online-brokerage">best online brokerages</a> offer low minimums, account flexibility, investment tools and resources, and access to human advisors for personalized guidance and advice. </p><p>Here's what to know about mutual funds, including how they work, what to watch out for, and how to get started investing in them. </p><h2><strong>How do mutual funds work?</strong></h2><p>Generally, mutual funds are actively managed by a fund manager who controls when to buy and sell securities to maximize returns and minimize losses. When you buy a mutual fund, you're buying partial ownership of the fund and its assets, meaning its entire portfolio of investments.</p><p>This differs from buying an individual <a href="https://www.businessinsider.com/personal-finance/what-is-stock">stock</a>, where you buy partial ownership directly in a company and manage any subsequent moves yourself (unless you have a financial manager). </p><p>The price of a mutual fund is determined by its net asset value (NAV), which takes all of the portfolio's securities into account. It is found by dividing the total value of the fund's assets (cash and securities) by the number of the fund's outstanding shares. </p><p>Since a mutual fund's portfolio consists of many securities that change price throughout the day, the NAV is calculated at the end of the market day. Because of this, mutual funds trade only once per day, after the <a href="https://www.businessinsider.com/personal-finance/what-is-the-stock-market">stock market</a> closes.</p><p><strong>Example:</strong> Let's say you want to put $2,000 toward a mutual fund. If the fund's NAV is $20, you're able to purchase 100 shares — not counting fees. Along with other investors' contributions, that $2,000 would then be used by the fund manager to make trades with the goal of outperforming the market.</p><h2><strong>Mutual fund fees</strong></h2><p>You should be aware that mutual funds come with structured fees for active management, which eat into your total profits. A mutual fund will label fees into two main categories:</p><ul><li><strong>Annual fund operating expenses: </strong>A fund's total annual operating expenses include management and transaction fees, which are expressed collectively as the fund's <a href="https://www.businessinsider.com/personal-finance/what-is-expense-ratio">expense ratio</a>. While relatively small, expense ratios can significantly affect a fund's return, especially over time.</li></ul><ul><li><strong>Shareholder fees: </strong>A fund can also come with shareholder fees, which cover commissions regarding buying and selling the fund. Most mutual funds will have a sales charge called a "load," which can be a flat fee or a commission, and occur when you purchase or sell your shares back to the fund. </li></ul><p>If you're in the market for a mutual fund, its fees are an important factor to consider. You can find all associated fees outlined in detail in the fund's <a href="https://www.businessinsider.com/personal-finance/prospectus">prospectus</a>.</p><h2><strong>How to make money investing in mutual funds</strong></h2><p>You can make money on mutual funds in a few different ways:</p><ul><li><a href="https://www.businessinsider.com/personal-finance/what-is-a-dividend"><strong>Dividend payments </strong></a><strong>:</strong> Similar to stocks, a mutual fund can pay out dividends to its investors periodically. They can choose to receive these payouts as cash or to reinvest them in your account.</li><li><a href="https://www.businessinsider.com/personal-finance/what-are-capital-gains"><strong>Capital gains</strong></a><strong> :</strong> When an investor sells a fund at a profit, that's known as a capital gain. This gain gets passed off to a fund's shareholders annually.</li><li><strong>NAV:</strong> If your mutual fund's value increases, the price to purchase its shares will also increase. This benefits you if you choose to sell your shares since you would sell at a gain. </li></ul><p><strong>Quick tip: </strong>When looking at NAV, you want to follow how a fund's value changes over time, rather than comparing one fund's value to another in a single day.</p><h2><strong>Are mutual funds a good investment?</strong></h2><p>Compared to buying individual stocks or bonds, investing in mutual funds is a more effective way to diversify your investment portfolio.</p><p>"Mutual funds are an easy and well-established way to give everyday investors diversification," says Michael Iachini, CFP and head of manager research for <a href="https://www.schwab.com/investment-advice" target="_blank" rel="noopener">Charles Schwab Investment Advisory</a>. "They are well established since the 1920s, and they have a track record of working for investors."</p><p>If you're looking to invest in mutual funds, just make sure to keep an eye on costs, since actively managed mutual funds can eat into your profits with expense ratios and commissions. Beginner investors may be better off choosing <a href="https://www.businessinsider.com/personal-finance/what-is-an-index-fund">index funds</a> over actively managed funds to snag earnings without a big price tag. </p><h2><strong>Pros and cons of mutual funds</strong></h2><p>Before you add mutual funds to your portfolio, there are advantages and disadvantages that can help you decide whether they are the right fit for your investment style and goals.</p><table style="border-collapse: collapse; width: 100%; height: 287px;" border="1"><tbody><tr style="height: 22px;"><td style="width: 37.2078%; height: 22px;">Pros</td><td style="width: 37.7922%;">Cons</td></tr><tr style="height: 265px;"><td style="font-weight: normal; width: 37.2078%;"><ul><li>Offer simplicity and peace of mind with professional fund managers.</li><li>Typically require a small minimum investment to buy in.</li><li>Add diversification to your portfolio with various asset classes and industries</li><li>Ability to invest with exact dollar amounts versus buying shares of stocks at fluctuating prices.</li></ul></td><td style="width: 37.7922%; height: 265px;"><ul><li>Professional management fees can be costly. </li><li>Not insured by the Federal Deposit Insurance Corporation (<a href="https://www.businessinsider.com/personal-finance/fdic">FDIC</a>), so there is the risk of losing money.</li><li>A chance of dilution decreasing the worth of your shares when a successful mutual fund grows too big.</li><li>You have no control over a fund manager's decisions, which can trigger tax implications like capital gains that add to your taxable income.</li><li>Since mutual funds trade after markets close, they don't allow for trading during the day and taking immediate advantage of market movements.</li></ul></td></tr></tbody></table><h2><strong>Types of mutual funds</strong></h2><p>Mutual funds aren't homogenous. They are classified into many different types, including the securities they invest in and the investment goals they seek to achieve. Here are seven of the major types:</p><h3><strong>1. Equity funds</strong></h3><p>Equity funds invest mostly in stocks and are often categorized by company size and <a href="https://www.businessinsider.com/personal-finance/what-is-market-cap">market capitalization</a>. Equity funds can be labeled as growth, value, or blended funds. Growth funds hold shares of companies with potential to outperform the overall market, while value funds are filled with stocks of seemingly undervalued companies. Blended funds mix both growth and value stocks.</p><p>"Remember there are more than 10,000 equity mutual funds, yet there are only 2,800 stocks that trade on the New York Stock Exchange," says Clark Kendall, president and CEO of <a href="https://kendallcapital.com/" target="_blank" rel="noopener">Kendall Capital</a>. "Equity mutual funds do a great job of slicing and dicing the equity markets however you would like to have your market served to you."</p><p><strong>Quick tip: </strong>Over the long term, equity funds can generate a much higher yield than other mutual funds. Though stock investments can be volatile, equity funds offer more portfolio diversity than many of the other mutual fund types and individual stock investments.</p><h3><strong>2. Bond funds</strong></h3><p>Bond funds pool investors' money to primarily purchase bonds, from short- to long-term maturities. Some funds include a range of securities including government bonds, corporate bonds, and mortgage-backed securities, while others may focus on a specific part of the bond market.</p><p>Bond funds provide quick diversification without buying various bonds individually. Many funds also distribute dividends each month, which you can reinvest. </p><ul><li><strong>Corporate bonds:</strong> issued by corporations that mature over a period of time and pay interest if you hold the bond to maturity</li><li><strong>Government bonds: </strong>issued by the US government, including <a href="https://www.businessinsider.com/personal-finance/treasury-bonds">Treasury securities</a>, with fully taxable interest from a federal level and tax-free from a state level</li></ul><ul><li><strong>Municipal bonds: </strong>issued by local governments and other authorities to pay for projects such as projects such as toll roads, stadiums, and hospitals; interest is exempt from federal taxation and in many cases state and local taxation as well</li></ul><p><strong>Quick tip: </strong>If you invest in municipal bonds, the interest you earn is exempt from federal taxation, and if you buy the bonds in the state where you live they are also exempt from state taxation.</p><h3><strong>3. Money market funds</strong></h3><p>Money market funds are fixed-income mutual funds that invest in short-term debt securities with low credit risk. These funds aim to provide <a href="https://www.businessinsider.com/personal-finance/what-is-liquidity">liquidity</a>, maintain a stable share price, and distribute regular income earned on its securities to its investors. </p><p>Money market funds are categorized as government, prime, or tax-exempt, depending on the securities held within the fund. Securities often invested in money market funds include short-term US Treasury securities, federal agency notes, <a href="https://www.businessinsider.com/personal-finance/certificate-of-deposit">certificates of deposit</a>, corporate commercial paper, and municipal agency obligations. </p><p><strong>Quick tip: </strong>Money market funds are typically not a good place to keep your money for very long. Over time the low yield of the fund may not match the rate of inflation, management fees, or tax liabilities.</p><h3><strong>4. Balanced funds</strong></h3><p>Balanced mutual funds invest in both bonds and stocks, so you get the best of both worlds with steady income and investment growth. Also known as asset allocation funds, these funds typically stick to their original asset mix. If any changes are made, the funds are automatically rebalanced to bring them back to the original allocation.</p><h3><strong>5. Index funds</strong></h3><p>Index funds are a type of mutual fund designed to mirror the performance of a particular market index, like the S&amp;P 500 or the Dow Jones Industrial Average. Because index funds are built to match the performance of the target index, they are passively managed investments. This means they require less research and trading from the fund manager, so there are fewer fees and expenses. </p><p>It's important to note that while an index fund can be structured as a mutual fund, it can also be an exchange-traded fund (<a href="https://www.businessinsider.com/personal-finance/what-is-an-etf">ETF</a>). Index funds are especially favored by investors because they are a low-risk, low-maintenance, low-cost way to see steady returns over time. </p><h3>6. Specialty funds</h3><p>Specialty funds, or sector funds, concentrate on securities within a specific industry or market sector, such as real estate, technology, or healthcare. Examples of specialty funds include real estate mutual funds, which invests in <a href="https://www.businessinsider.com/personal-finance/what-is-a-reit">REITs</a> and other real estate-related investments. Because specialty funds are focused on specific sectors like health care and technology, they aren't diverse so you'll want to mix these in with other types of funds and assets. </p><p>A more recent trend in mutual funds has been "<a href="https://www.businessinsider.com/personal-finance/what-is-impact-investing">impact investing.</a>" They target companies or projects committed to specific social or environmental causes.<br /><br />These funds cater to investors who are increasingly looking to direct their money to companies that are making positive social or environmental impacts in the world. While many perform well, the return on impact investments may be lower than more traditional investments.</p><h3>7. Target-date funds</h3><p><a href="https://www.businessinsider.com/personal-finance/target-date-funds">Target-date funds</a> operate with a specific goal date in mind. These funds automatically rebalance the asset mix within their portfolio over time and become more risk-averse as the target date nears. Target-date funds are popular for retirement savings since you can set your retirement date as the target, and let the fund adjust for you.</p><h3><strong>8. Hybrid funds</strong></h3><p>Hybrid funds invest in two or more asset classes whereas other mutual funds tend to invest in a single asset class. Hybrid funds often combine stocks and bonds, but may even include <a href="https://www.businessinsider.com/personal-finance/what-are-commodities">commodities</a> like raw materials or precious metals.</p><p>The goal of a hybrid fund is to reduce risk by further diversifying the investors' portfolio, even more so than other mutual fund types. Further, hybrid funds can offer an investor a combination of income generation, capital gains, and NAV. </p><h2>Mutual funds — Frequently asked questions (FAQs)</h2><h3 class="faq-question">What are the 4 types of mutual funds?</h3><p class="faq-answer">There are multiple types of mutual funds, such as equity funds, bond funds, money market funds, balanced funds, index funds, specialty funds, and target-date funds. Different kinds of mutual funds invest in different securities for varying financial goals. </p><h3 class="faq-question">Do mutual funds pay interest?</h3><p class="faq-answer">Yes, depending on the type of mutual fund you invest in, you may earn interest on certain assets in your portfolio. These funds often invest in fixed-income securities. Mutual funds that can earn interest are money market funds, bond funds, and balanced funds. </p><h3 class="faq-question">Are mutual funds a safe investment?</h3><p class="faq-answer">Mutual funds are generally considered a safe investment. Compared to individual stocks, investing in mutual funds helps diversify your investment portfolio and lower your overall market volatility. But keep in mind that mutual funds are not risk-free. Just like an investment, there is a level of risk involved and no guarantee that you're investment will turn a profit. </p><h2><strong>How to start investing in mutual funds</strong></h2><p>You likely have already invested in mutual funds if you have a <a href="https://www.businessinsider.com/what-is-a-401k">401(k)</a> retirement account. But if you want to start investing in mutual funds outside of employer-sponsored accounts, you can buy and sell them through an online broker with a brokerage account. </p><p>You can also buy mutual funds directly from the company that created the fund, like Vanguard - Product Name Only or Fidelity Investments - Product Name Only, although that limits your options to whatever they offer. If you need more guidance with your investments, you could consider working with a financial advisor or broker.</p><p>Each fund and each brokerage account may require a specific minimum investment amount to get started. "You typically don't need a lot of money in a mutual fund," says Iachini. "At least have $100 saved up. Once you've chosen a fund, look at its asset class, expense ratio, investment objective, whether that's income, growth, or intentionally trying to be conservative, and who is managing the fund." </p><p>It helps to ask yourself a few questions to help narrow down your options. How involved in rebalancing your asset allocation do you want to be? What are you saving for? What do you value? For example, if you're saving for retirement, you'll want to look to target-date funds. Or perhaps you want to look for <a href="https://www.businessinsider.com/personal-finance/esg-investing">ESG</a> funds that invest in socially conscious companies.</p>

Mutual funds: Definition, types, and how to invest

<ul class="summary-list"><li>A target-date fund is a type of <keyword id="11965075" type="UNKNOWN" weightage="60" keywordseo="mutual-fund" source="Orion">mutual fund</keyword> or ETF that is designed to help with <keyword id="11909870" type="UNKNOWN" weightage="60" keywordseo="retirement" source="Orion">retirement</keyword> investments for anyone with a specific retirement date in mind.</li><li><keyword id="12594581" type="UNKNOWN" weightage="60" keywordseo="target-date-funds" source="Orion">Target-date funds</keyword> are made up of various investments and will change over time to become more conservative as the "target date" approaches.</li><li>Target-date funds are structured in a way that's known as "fund of funds," which means they invest in numerous mutual funds instead of individual securities.</li></ul><p>Target-date funds, also known as life-cycle funds, are retirement funds that are designed to simplify the investment process for those who know when they plan to retire. These asset types can help investors control risk by automatically changing to more conservative <keyword id="11899862" type="UNKNOWN" weightage="60" keywordseo="assets" source="Orion">assets</keyword> as the "target date" — or the date at which the fundholder plans to retire — nears. </p><h2><strong>How target-date funds work </strong></h2><p>Target-date funds are structured to offer long-term investment growth over a set period of time. The name "target-date fund" refers to its target date, or the year an investor wants to meet a financial goal, which doesn't necessarily need to be related to retirement. "[Target-date funds] are used for something specific in the future, whether it's retirement or a college fund," says Fernanda Novaes, portfolio manager at Intercontinental Wealth Advisors based in San Antonio, Texas. Investors choose a fund with a target year close to their target date. While some target-date funds are invested directly in <a href="https://www.businessinsider.com/what-is-stock" target="_blank" rel="noopener">stocks</a> and <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, it's more common for them to be a mix of <a href="https://www.businessinsider.com/mutual-funds" target="_blank" rel="noopener">mutual funds</a>. This mix is referred to as a "fund of funds" and is naturally diversified. </p><p>A target-date fund is designed to shift its investments automatically to reduce risk as the target date gets closer. "If you're not a savvy investor or if you don't have much time to keep looking at investments, follow the market, or understand what asset classes you should put in there, it's a simple way of putting it on autopilot," says Novaes.</p><p>Initially, the fund invests in riskier options like equity. But over time, it switches to more conservative options like bonds. Most investors would make this transition during their journey toward retirement anyway, and this fund does the work for you. </p><p>This gradual transition is called a glide path, based on the course of a landing airplane. The length and severity of the glide path depends on the fund. "There are target date funds that are five years out and there are target-date funds that are 50 years out," says Novaes. "It depends on your needs." But no matter how many years are left in a target-date fund, the glide path will be gradual.</p><p>If you need to sell a target-date fund at any time, you shouldn't have to pay exit fees. But if you invested in a taxable fund, there may be tax penalties for withdrawal.</p><p><strong>Quick tip</strong>: Every mutual fund charges fees. Because a target-date fund is a fund of funds, your fees may be duplicated for each of the funds included in the investment portfolio. Research the total fees using <a href="https://tools.finra.org/fund_analyzer/" target="_blank" rel="noopener">FINRA's Fund Analyzer</a> to understand the expense ratios before investing.</p><h2><strong>Example of a target-date fund </strong></h2><p>Let's say an investor is 40 years old and plans to retire at 65. So, the investor picks a Target-Date 2045 fund. The managers of the fund take care of all the behind-the-scenes work — everything from stock selection to sales to reconfiguring the balance of the overall fund. </p><p>In the early years of the fund, it is invested in more stocks than bonds because there's enough time over the next 25 years to take risks. This Target-Date 2045 fund is made up of 75% stocks. These riskier investments in the beginning could lead to better growth. If there are any downward turns along the way, there's time for the fund to recover.</p><p>Slowly over the years, the fund managers will follow a glide path. The glide path designates how frequently the managers rebalance the fund to eventually include mostly conservative assets like bonds, fixed-income securities, or cash. By 2045, the fund includes only 30% stocks without the investor having to make the decisions.</p><p>These changes that are made over time are meant to become more conservative, so that risks and losses are less likely as the target date gets nearer.</p><p><strong>Quick tip</strong>: Look at the target-date fund's prospectus before investing. You'll be able to check factors like how the fund divides up assets over the entire lifespan, level of risk, success rate, and fees.</p><h2><strong>Pros and cons of target-date funds </strong></h2><p>There are several positives and negatives of target-date funds that are important to note before investing in one. Here are a few that investors encounter most often:</p><table><tbody><tr><td><p>Pros</p></td><td><p>Cons</p></td></tr><tr><td><ul><li><p>The investment process is smoother and simpler because it's designed to be the sole investment</p></li><li><p>Target-date funds are already diversified</p></li><li><p>A target-date fund is designed for investors who want to set it and forget it</p></li></ul></td><td><ul><li>The management fees may be more expensive than other retirement funds</li><li>Investors cannot be completely hands-off because they should research different target-date funds before investing and keep an eye on performance over the years</li><li>It's not a customized retirement option</li></ul></td></tr></tbody></table><h2><strong>How to invest in target-date funds </strong></h2><p>People can invest in target-date funds in several ways. The most common is through a company <a href="https://www.businessinsider.com/what-is-401k" target="_blank" rel="noopener">401(k)</a> that offers target-date funds. Some employers only offer this type of fund in their 401(k)s. Another way to buy a target-date fund is through an IRA — either <a href="https://www.businessinsider.com/roth-vs-traditional-ira" target="_blank" rel="noopener">traditional or Roth</a>. All of these options are tax-advantaged. You could also buy a target-date fund from an online <a href="https://www.businessinsider.com/what-is-broker" target="_blank" rel="noopener">broker</a>, but these may be taxable, so it's probably best to avoid that route if you can.</p><p>You can also head to a financial services company like Vanguard, Fidelity, or Charles Schwab that offers target-date funds. "Typically the easiest thing to do — let's say you have your account at Fidelity — is to pick a Fidelity target-date fund," says Novaes.</p><p><strong>Note:</strong> According to Morningstar, <a href="https://www.businessinsider.com/reviews/out?u=https%3A%2F%2Fwww.morningstar.com%2Flp%2Ftdf-landscape" target="_blank" rel="nofollow noopener sponsored">management investment</a> is an important data point to look at when choosing a target-date fund. This point shows whether fund managers have invested their personal money into the fund — and it's a reliable indicator of whether the fund will outperform its competitors.</p><h2><strong>The financial takeaway</strong></h2><p>Also, although they may seem like a straight shot toward your retirement goals, target-date funds are not without risk. Investing money in the stock market is inherently uncertain, and although they are diversified, you're not protected against losses completely. Make sure you understand the full picture of the risk before investing.</p><p>Before investing, it's helpful to check whether there's a management member with significant investments in the fund.</p>

Target-date funds are assets that are designed to offer long-term growth by a set time

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span><a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.139959643&amp;foc=2&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_er_how-to-use-retirement-fee-analyzer">Personal Capital</a></span></p><p class="caption">Personal Capital's retirement fee analyzer is a free tool anyone can use.</p></div><p></p></div></div></p><ul class="summary-list"><li><strong>Investment fees can take years off of your retirement savings without you ever realizing it. Focusing on cutting fees can save you tens of thousands of dollars, if not more.</strong></li><li><strong>Most mutual funds and ETFs with high fees can be easily replaced by lower-cost funds with a similar makeup.</strong></li><li><strong>Running your investments through <a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.139959643&amp;foc=2&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_081619_er_how-to-reduce-fees-with-pc">Personal Capital</a>'s free retirement fee analyzer and updating your investments can pay dividends for decades to come.</strong></li><li><a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.139959643&amp;foc=2&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_081619_er_how-to-reduce-fees-with-pc">Learn more about Personal Capital »</a></li></ul><p>They say that a penny saved is a penny earned. Nowhere is that more true than your investment accounts.</p><p>While a 1% annual fee might not sound like much, over years of saving and investing for retirement and other big goals, fees can eat away at tens or even hundreds of thousands of dollars. That's way too much to give away without even realizing it.</p><p>When I first signed up for <a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.139959643&amp;foc=2&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_081619_er_how-to-reduce-fees-with-pc">Personal Capital</a> in October 2012, I was taken aback by the total fees I was paying across all of my mutual funds and ETFs. Based on what I found in my <a href="https://track.flexlinkspro.com/a.ashx?foid=1067927.139959643&amp;foc=2&amp;fot=9999&amp;fos=1&amp;fobs=bipfi_081619_er_how-to-reduce-fees-with-pc">Personal Capital</a> account, I made updates that saved me about $300 per year, which compounds to over $50,000 over 30 years, assuming a 10% return.</p><p>If you want to take a closer look at your own fees, and potentially save some serious cash, here's how to do it.</p>

Personal Capital's free retirement fee analyzer could help find you thousands of dollars in savings. Here's how to use it.

<p>Despite the stock market being at all-time highs, Americans' direct ownership in the market has been trending down.</p><p>But that trend has been partially offset by their indirect ownership.</p><p>"Direct ownership of equity assets has declined over time," wrote Kostin in a note Wednesday. "Households own only 19% of equities directly compared with 40% of equities held directly and indirectly through mutual funds and pension funds."</p><p>When you combine direct and indirect exposure, that totals $26.8 trillion of Americans' $67 trillion worth of household financial assets.</p><p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span>Goldman Sachs</span></p></div><p></p></div></div></p><p>Kostin noted that through direct ownership, mutual funds and retirement funds, American households own nearly 70% of the stock market.</p><p>In comparison, international investors hold the second-most percentage of the stock market with 16%, and hedge funds own just 4%.</p><p>No matter if its called a mutual fund, an IRA, or a 401(k), Americans put a lot of their money in stocks.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/ian-bremmer-oil-prices-low-energy-eurasia-group-2015-12">Ian Bremmer: Angela Merkel is going to have a bad 2016</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="w2NThneTrW_N2Dl_B5BIX9tKrXB1cdoT" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

You Searched For "retirement mutual funds" and got 13 results

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