How to invest in mutual funds and grow your money for retirement, a bucket-list trip, or any other long-term goal

To invest in mutual funds, you’ll start by opening a brokerage account. Willie B. Thomas/Getty Images

Mutual funds are a popular way to invest for long-term goals, like retirement.

According to Statista data, 44.8% of US households own mutual funds. There are nearly 10,000 mutual funds to choose from based in the United States and, if you add up the assets in every US-based mutual fund, investors have $US17.71 trillion stashed away in these funds.

Clearly, mutual funds are a big deal. Mutual funds are a single investment that allows you to invest in many underlying assets at once. That means one click of the mouse could get you a basket of stocks, bonds, or a combination.

Mutual funds may specialise in following a particular index, helping investors reach a goal like retirement, or give them exposure to a diverse number of assets around a particular theme or asset type.

How to invest in mutual funds

If you are interested in investing in mutual funds yourself, follow these steps to invest in the right funds for your financial goals.

1. Open and fund an investment brokerage account

The first step to investing in mutual funds is to open an investment account, also known as a brokerage account.

Most major brokerages in the US allow you to buy and sell mutual funds. Some brokerage firms have their own mutual funds, but you are not limited to buying only the funds your brokerage offers. Link your brokerage account to your bank account and transfer funds to buy your mutual fund.

If there is a specific brand of mutual fund you prefer, such as Vanguard or Fidelity, you should consider opening your account with that brokerage, as most brokers don’t charge fees for buying and selling their own mutual funds.

Some brokers have a large list of mutual funds you can trade for free. Other trades will incur a fee.

2. Research the mutual fund you want to buy

With over 9,500 registered mutual funds, you have a bit of a task ahead of you. Luckily, there are a few tools and tricks you can use to zero in on what’s best for your goals.

Look at the research section of your brokerage account for general information on mutual funds. Use a mutual fund screener to create a shortlist of potential investments based on things like fees, allocations, assets classes, and other criteria.

Take a serious look at the recurring fees, called the expense ratio, as well as any buying or selling fees, called load fees.

Funds may also be rated by agencies like Morningstar or your brokerage, which gives you a good second opinion before buying.

3. Open your broker’s trading website or app

Once you’ve done your research and are sure of your investment, make a note of the name and ticker symbol for the mutual fund.

One of the largest funds in the US is the Vanguard Total Stock Market Index Fund with the symbol VTSAX. We’ll use that as an example below in an account at Ally Invest.

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Open an Ally Invest account today and start investing in mutual funds »

In the trading tool, enter the ticker symbol. You can generally buy mutual funds in round dollar amounts. Most funds have a minimum investment amount. For VTSAX, that is $US10,000. This makes exchange-traded funds (ETFs), which have no minimum but work similarly to mutual funds, a more viable option for newer investors.

4. Wait for the trade to execute

Mutual fund trades are not instant. Unlike ETFs, mutual funds won’t go through right away. All mutual fund trades happen once per day after the market closes. Mutual funds recalculate asset values daily and trades are based on that asset value, which posts daily around 6:00 PM Eastern.

Once the trade goes through, you should see it in your investment account. The value will update daily going forward.

5. Check in with your portfolio

Most people shouldn’t check on their portfolios every day. Many mutual funds require a minimum investment period to sell without fees, so mutual funds are really for longer-term investments.

It doesn’t matter what the markets do in a week, a month, or a year for many mutual funds. What matters is the results of decades of investing.

Mutual funds are a great investment choice for millions of people, just make sure you understand the risks and costs. Like most other investments, the value of mutual funds can go down. Always invest with caution.

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