There are actually 5 basic steps for buying mutual funds which arent so hard as you might think if you are a beginer in the investing field.
Step 1) Decide whether to go active or passive on your investments.
This step is the first and pretty much the biggest. This one is all about you asking your question of “Do I want to beat the market or try to mimic it?”.
One approach costs more than the other, often without delivering better results. Which means that you have to be the one to find the answer for this question.
Most mutual funds are managed by professionals who research what’s out there and buy with an eye toward beating the market. Which for you and for everyone else means that 90% of the work is done for you by professionals.
However there are some mutual funds which arent managed by professionals. There are as well mutual funds that managers might achieve this in the short term, it has proved difficult to outperform the market over the long term and on a regular basis.
This one last time of mutual funds which was mentioned are much more expensive because of the human touch involved.
When it comes to the passive investing. The whole point here is a more hands-off approach which rising in popularity, thanks in large part to the ease of the process and the results it delivers.
Passive investing is best for most people espacilly beginners because the funds are cheaper and there are fewer fees. Which means that you get more from the money you are investing without paying in fees a lots of money.
Step 2) Decide where to buy mutual funds
This actually is also very important. To be able to invest in stocks or mutual funds you need a brokerage account.
If you contribute to an employer-sponsored retirement account, like a 401(k), then you are mostlikely already invested in mutual funds.
Be aware that there are many shitty and very bad brokerage comapnies and websites, which makes it hard to find the really good once.
I personally would recommend to use either RobinHood or eToro.
Step 3) Calculate your budget
Mutual fund providers often require a minimum amount to open an account and begin investing. Which means that you need to have an spesific amount of money ready.
There are some providers of mutual funds which can have the minimum amount on $200 and some may have $3000.
Of course the great advantage of mutual funds is the low-cost way they offer to build a diverse portfolio with various stocks and bonds.
Step 4) Understand and scrutinize mutual fund fees
For the most part the service level of actively managed accounts will be higher than you might think at the beginning, but so will the fees you pay.
This more or less means that a company will charge the annual fee for fund management and other relevant costs of running the fund, expressed as a percentage of the cash you invest this is known as the expense ratio.
A lots of these fees arent as easy to identify upfront as you might think at the beginning. However they are well worth the effort to understand, because they can eat into your returns over time.
Sales loads are also pretty relevant when it comes to the mutual funds. Because these are commissions paid at the time of share purchase but also when redeemed.
These sales loads are compensation paid to financial professionals, such as a broker or investment advisor, to buy mutual fund shares.
Step 5) Build and manage your portfolio
The final step here is to build and have control over your investing portfolio.
Whenever you have done your homework of searching for the mutual funds which suits you the best and you are determined to buy them, you will need to be able to manage your investment and know whats happening with them.
If you start on the right foot you will not need to worry so much and be absent of controling your investing portfolio for weeks.
Of course you need to have a plan about how much you will invest each month, which industries and comapnies to buy more from etc. That plan you will make at the beginning will help you.
You need always keep in mind that “past performance is no guarantee of future performance”, you would be surprised how many beginning investors and even experienced investors forget about this.