Now that we’ve covered both the advantages and disadvantages of mutual funds – let’s talk about how to buy and sell them.
Where to Buy Mutual Funds
There are a number of options to choose from when deciding where to buy mutual funds:
Your employer-sponsored plan
The fund company directly (Vanguard, T. Rowe Price, etc.)
A “supermarket”, where funds from many different providers are offered
A human broker/financial planner (watch out for extra fees!)
Tips for How to Buy Mutual funds
Identify goals and risk tolerance before. An investor should identify his or her goals before acquiring shares in any fund. Risk tolerance and time horizon should also be assessed – the investment should not be keeping the investor up at night.
Consider style and fund type. This will largely depend on the investor’s goals and time horizon. If he or she is comfortable with volatility and is in it for the long haul, he or she would be suited for a long-term appreciation fund. These typically hold a high percentage in common stocks, giving them both a higher risk and a larger reward. If the investor’s looking for current income, they’d surely go with an income fund – whereby government and corporate debt are the most common holdings.
Be aware of charges/fees. Mutual funds make their money by charging fees to the investor. Some will charge a load fee, which is a sales fee that will either be charged upon the initial investment or upon the sale of the investment. The load will either be a front-end load, where the fee is paid out of the initial investment made by the investor, or it’ll be a back-end load, where the fee is charged when an investor sells his or her investment. Both will typically charge 3% to 6% of the total amount invested, but they can actually charge as high as 8.5%.
Evaluate managers and past results. With that being said, do keep in mind that past performance is by no means a guarantee of future results.
How to Sell Mutual Funds
It’s important to know when and how to sell a mutual fund. Here are the proper steps to doing so:
Contact financial advisor (or mutual fund company)
Inquire about fees/charges
Figure out how many shares you wish to sell
Provide instructions on what to do with the money
Now
that you know the steps to take to sell them, the big question
becomes when to sell them!
When to Sell Mutual Funds
Cashing in and investing your money elsewhere can be tempting when your mutual fund is yielding a lower return than anticipated. There are both pros and cons to the redemption of your mutual fund shares.
Ensure that when you decide to sell a mutual fund that you aren’t doing so impulsively. The decision requires a great deal of thought and consideration. Knowing how and when to buy and sell mutual funds can be a truly overwhelming experience – we know. We’ve got you covered. Our Putting Your Money in the Market course will teach you everything you need to know about how and where to buy/sell mutual funds.
