I'm sure there are a lot of people who ask about Mutual Funds and I understand the concept that you buy a share of the mutual fund and its invested broadly across many markets. Does anyone have any funds they like that they want to share or any stories about what to look for and how long you should let one go. I like the idea of target date funds. I can say "Hey in 5 years I want to buy a car, I'll put (X) away every month in this fund and then in 5 years I get my check" It seems simple and you chose the risk you can handle. I'm also a noob so I maybe underthinking the whole thing. Chime in.
There are some very good mutual fund managers out there. I have mostly mutual funds in my more conservative retirement accounts, and I've found over the years that they can be a good investment strategy for many people as part of a balanced portfolio. Some of my favorites are BRUFX, SGIIX, YAFFX, FPACX, and MALOX... TGEIX, FEHIX, & TGBAX for bond exposure... and VGELX and PURZX for energy and real estate exposure respectively. I used to own a little of a precious metals fund that invested in mining companies years ago, but I've gotten away from those in recent years. They tend to get hit harder than the actual commodities when the commodities sell off. I've found that it's better to get metals exposure via ETFs that buy the physical commodities themselves. I also do this for oil, nat gas, and with an agricultural index as well.
Great question, but unfortunately I need to inform myself more because I don't really know the answer.
I've also been considering investing in bonds or mutual funds because the results seem promising. There are a lot of companies to choose from and I've yet to investigate further about them.
Mutual funds are a good starting point. Just be careful about the target date funds. I'm not familiar with them but if it's automatically sold on the target date then no thanks. You can do exactly the same with any mutual fund, you know when you need the money and you can sell accordingly. Thing is, maybe 6 months before the date you start thinking that it would be a good idea to get rid of it since the market is volatile, so you could sell 6 months early and keep it as cash for the 6 months or buy the car earlier. Or, if the market has just dipped before the date you were planning on withdrawing, you can keep the money in for a bit longer so you don't have to take losses. This just gives you more room to move according to your own views and more options with risk management.
Most mutual funds are pretty generic and tell you what type of companies they invest in. For instance big cap vs small cap funds, domestic, overseas or emerging markets.. Obviously investing in big cap companies from the US is about as safe as it can get. One thing to watch out for is just to read about the fees involved, some funds are considered ´load´ funds and they actually take a percent of your investment in order to run the fund. Others are no-load, and the operating expenses of the fund are more hidden. Generally it is better to stick with no-load funds if you are a small investor.
Most mutual funds you know exactly what you're getting and they are pretty generic. They are low risk low reward type investments, yet people can make a lot of money off of it. I usually pick no-load funds considering I do not invest much. If you are not looking to invest much I would do the same. Good luck my brother.
The first thing I would advise is that if you need the money in five years or less as you indicate in your example, then you do not want to put it in the market at all whether it be in mutual funds, etf's, individual stocks, or whatever. The reason is there is always the chance that the market will be down when you need the money and you will be forced to sell at a loss. You should only invest in the market what you plan to keep there for the long term, especially if you are using target date retirement funds. If that is the case then I can tell you that one of the best indicators I have found to help me choose between mutual funds on Vanguard's site is a spreadsheet that compares several funds and gives you returns over different time frames like 1 year, 5 years, 10 years, and since inception. I realize that past performance is no guarantee of future results, but since we can't determine the future, past results are a pretty good comparison indicator. In addition, since we have been in a bull market since 2009, I usually only consider returns from a time period beginning before the 2008 crash.
There is an amazing book on this topic called A Random Walk Down Wall Street, the author teaches investing at Harvard Business School. His main point is: you don't need to hire a guy like him!
