Need to start retirement planning? Consider investing in mutual funds

If you’re new to investing and looking for a simple way to start funding your retirement, mutual funds could be the right choice for you. But before you make any rash moves, get the run down on what mutual funds are along with the pros and cons.

First off, understand that mutual funds are huge collections of stocks and bonds that a group of people pool their money together to purchase. A financial management company invests the money on behalf of the group and each group member collects earnings through dividend or interest payments or capital gains.

There are several advantages of mutual funds. The most common are:

1) Investing in mutual funds is an easy way to get start investing. For example, you can start investing with as little as $25 to $100. And because the money is managed for you, you don’t have to learn a lot about investing before you get started. In other words you can learn as you go, save and potentially make money in the process. Here are some low cost mutual funds with monthly minimums to consider:

Neuberger Berman

HighMark Funds

T. Rowe Price

Heartland Funds

2) Your portfolio will be instantly diversified. Think of it as the risk of placing all your eggs in one basket. Drop the basket, there’s a high likelihood that eggs will either tumble out of the basket and get lost or become cracked. Either way, you egg harvest is lost. With mutual funds, you have eggs in different baskets. So if something happens to one basket, there’s little risk in you loosing all your eggs.

3) If and when you need cash, then you can convert your fund to money any time.

But like any coin, there are two sides. When evaluating mutual funds, here are some disadvantages you definitely want to explore.

1) You can’t avoid fees. Whether you make any money on your fund at all, you’ll be expected to pay for having your funds managed by a professional money manager. And something you should note: just because your investment will be handled by a pro doesn’t mean that you’ll get high returns.

2) You’ll give up some of your profits. Money managers will also take a cut of your earnings for the work they do—even if they do a lot, a little, or nothing at all.

3) There’s no guarantee on the return of your investment. In fact, the value of your fund could depreciate.

4) Your mutual funds are not protected by the FDIC. These days when major financial institutions are crashing over a weekend, it’s important to keep in mind that while checking, saving, money market accounts and CDs are covered by the FDIC, investments such as mutual funds are not.