Which mutual fund should you invest in?
So which mutual fund should you invest in? Investing in mutual fund may seem like a daunting task, especially with the variety of fund types to choose from. The advantages of mutual fund over other investment vehicles are clear. In mutual fund investing, your money is professionally managed and diversified to a wide array of asset classes, industries and more. It is also considered a low-cost way to own shares from the top companies available in the stock market. Lastly, investing in mutual funds enable you to earn better returns than a typical savings account. If you are prolonging your investment because you don’t know which mutual fund to invest in, then this post will guide you. There are ways you can streamline the selection process by asking these three important questions:
How much risk are you willing to take?
How long is your investment horizon? and
What is your investment goal?With the above questions we get three important terms you need to know (and remember) when it comes to investing - risk tolerance, investment horizon and investment goal. Let's differentiate each.
Investors under the conservative category are willing to accept little to no risk in their investment portfolios and go for mutual funds that are highly liquid and short-term. You lean more on a mutual fund type that offers steady growth with as minimal risk there is as possible.
If you are in the moderate category, your risk tolerance is on a medium level. You are comfortable in accepting a slightly higher degree of risk for a slightly higher return compared to conservative investors.
For aggressive investors, returns and risks go hand in hand. You are open to more risk and unbothered by sudden movements in the performance of the fund involved for your investments to enjoy a maximum potential return in the long-term.How much risk you are willing to take is important when selecting which mutual fund you should invest in. You want to be with a fund that matches your needs as an investor. Remember this: your risk tolerance may vary as you grow older, as your income becomes bigger and as your financial goals differ. Typically, the younger you are, the more risk you are able to take. As you grow older, you have more needs and responsibilities in life which may mean lower risk you can take. Read next: Top 10 Tips to Successful Investing
My goal is to retire early at age 40, my goal is to save and invest 30% of my salary every month in an equity fund. Why? Because I want to enjoy my retirement years.There are four primary types of mutual funds:
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