How To Buy Mutual Funds Online

There was a time, not so long ago, when investors could only buy and sell mutual funds by working one-on-one with financial professionals and brokers to manage and build their portfolios. Thankfully, the digital era has simplified this so much that literally, anyone can become a trader, so long as they possess a smartphone. Online investment platforms could be the most cost-effective way to buy mutual funds online by yourself.

So, What Are Mutual Funds?

Mutual funds are an investment vehicle that is essentially a pool of money from many investors. The money in the fund is used to purchase assets such as bonds, stocks, and other securities. So, when you buy a share of a mutual fund, you’re actually buying a fraction of all the securities in the fund. This instantly diversifies your holdings, making it an attractive option for regular investors and financial advisors.

Putting money into an investment portfolio and buying enough stocks and bonds to have a balanced selection is expensive, complicated, and time-consuming, particularly for newbie investors. On the other hand, buying shares of a fund gives access to diversity. Investing in mutual funds is a safer option because even if one of the assets in your mutual fund tanks, it is balanced out by other securities that are doing well.

It’s an enticing option, isn’t it? Here’s how you can buy mutual funds online:

Open An Investment Account

You will have to open an account either with a broker or a financial firm that offers this service. When you consider different investment accounts, it’s important that you select the ideal one to align with your goals:

  • Long-term wealth or expenses before retirement

In this case, a taxable investment account will help you to build long-term financial security. It also doesn’t come with restrictions regarding when you can or cannot make withdrawals. However, you will have to give taxes on any investment gains you make upon selling any securities or dividend payments you get annually.

  • Retirement

Individual retirement accounts or IRAs offer tax incentives when you use them to save for your retirement.

  • For your child’s future

See if your prospective brokerage offers custodial accounts. With this, you can invest on behalf of a child and when they reach the age of maturity, they can gain control of the accounts.

  • For your child’s education

If you want to help your child to pay for college, then a 529 account is ideal. It offers tax-free growth of investment so long as the funds are utilized for educational expenses.

Research, Research, Research!

This cannot be stressed enough – research is vitally important when deciding which mutual funds to invest in. There are plenty of mutual funds available, and they all have their characteristics. It is important to go with something that suits your goals and risk tolerance. You also have to determine if you want to invest in actively-managed or passively-managed funds.

Actively-managed funds are handled by investment professionals who work on offering positive returns, irrespective of the market’s performance. Passively managed funds, on the other hand, match the performance of a particular stock index. While many expect actively managed funds to be better than passively managed ones, in the long term, it could be quite the opposite. Generally, passively managed index funds offer higher returns and lower costs – which is why investors often recommend choosing low-cost index funds.

Other things to look out for are fees, such as load fees and expense ratios, and investment minimums. Generally, mutual funds require at least a minimal amount when you first buy into a fund. Thereafter, you can invest smaller amounts.

Decide On a Mutual Fund Investment Strategy

You have to be very clear on the percentage of your balance that you invest in different mutual funds such as stock funds vs bond funds. This breakdown is referred to as asset allocation where you divide your money between different asset classes. Ideally, your asset allocation should have a good amalgamation of debt instruments and equity so the risks are balanced out.

Buy Mutual Funds

After identifying the perfect mutual funds for your portfolio, you are now all set to buy. Look for the mutual fund ticker symbol on the brokerage website and show how many shares you would like to buy. Investors can only do mutual transactions one time each day after the market closes and it usually takes one or two days for the transaction to close.

Designate A Purchase Plan

Buying mutual funds shares over the course of years is the best way to attain your financial goals. Having said that, this also makes it all the more important to meticulously think through how you plan to purchase mutual funds.

You can go for a set dollar value on a weekly or monthly basis or invest a percentage of each paycheck. Regardless of your choice, investing brings a horde of benefits, the biggest of which is dollar-cost averaging. With this, you can buy the same dollar amount of mutual funds, irrespective of market performance, so you end up purchasing more shares when the market is down and vice versa.

It’s also important to analyze when you will check on the performance of your mutual funds. As per expert opinions, checking it once or twice a year is a good way to ensure that your asset allocation is on track.

Plan Your Exit Strategy

A mark of a good investor is that they already plan and understand when and why they will sell mutual funds even before buying them to mitigate tax consequences. This entails efficient strategizing for taxable investment accounts. An example is by sticking to investments for a minimum of a year to benefit from a lower tax rate.

The Takeaway

Mutual funds are a fairly recent option for investors, but a highly beneficial one particularly in diversifying one’s holdings in a single product. However, it comes with its fair share of risks, which is why you need to be adequately educated on this topic.

You need to weigh how reputable the company is, the services it offers, its trading platform, and the level of risk associated with your tolerance, among many other considerations. Getting the assistance of a financial advisor is a good way forward, as it will equip you with knowledge on how to handle your investment taxes in the best way.