Understanding mutual funds
Mutual funds are an affordable way to help diversify your portfolio.
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What is a mutual fund?
Mutual funds let you pool your money with other investors to "mutually" buy stocks, bonds, and other investments.
- They're run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them.
- You get exposure to all the investments in the fund and any income they generate.
- They offer a wide variety of investment strategies and styles.
Why invest in mutual funds?
Mutual funds let you access a wide mix of asset classes, including domestic and international stocks, bonds, and commodities.
Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are typically lower than what you would pay as an individual investor.
Buying mutual funds can be straightforward. Many banks and brokerage firms, including Schwab, have their own line of proprietary mutual funds as well as access to thousands of third-party funds.
You get the benefit of having a professional manager reviewing and researching the fund's portfolio on an ongoing basis.
What is the difference between active and index mutual funds?
How do mutual funds and ETFs compare?
Both mutual funds and exchange-traded funds (ETFs) pool money from many investors and invest that money in securities. Likewise, many investors own a mix of these funds. Before you decide on what's right for you, there are things to consider.
What fees and costs are associated with mutual funds?
Investing costs can be a key factor in your net return. It's important to understand how mutual funds assess fees and expenses. These fall into three broad categories:
Operating expense ratio (OER)
OERs cover the fund's operating expenses and are annually factored into the total return you receive.
A load is a one-time commission some fund companies charge whenever you buy or sell shares in certain load-based mutual funds.
Brokerage firms may charge a trading fee whenever you buy or sell mutual fund shares.
What types of mutual funds are there?
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