Buying individual stocks is certainly a way to try and grow your wealth in the market, but it comes with considerable risk. In addition, choosing which stocks to invest in requires doing extensive research beforehand.
For those who want a way to invest that's more convenient, with lower costs, less risk and more diversification, mutual funds are a good option.
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How mutual funds work
Mutual funds work by pooling money together from many investors. That money then gets used to purchase stocks, bonds and other securities. Because mutual funds invest in a collection of companies, they offer instant diversification (thus lower risk) to investors. Mutual fund investors share in the fund's profits and losses.
You have probably heard of index funds and ETFs before, which are two types of passive-investing mutual funds. There are also, however, actively managed mutual funds. These are mutual funds that are run by fund managers who choose your investments and buy/sell securities based on the fund's goals.
Actively managed mutual funds usually aim to beat the market (though outperforming the market regularly over the long term is hard to do), while passively managed index funds, for example, work to simply match the market's performance. For example, an S&P 500 mutual fund would try and replicate the performance of the S&P 500 stock market index buy investing in a tiny percentage of each of the companies in the S&P 500.
With mutual funds, investors have a lot of choices to try and grow their money between stock funds ("equity funds"), bond funds ("fixed-income funds") or funds that offer both ("balanced funds"). Within these categories, there are even more distinct funds to choose from. For example, "sector funds" allow you to invest in a specific industry, like clean energy, while "growth funds" allow you to focus on companies with capital appreciation.
Get started investing in a mutual fund with a brokerage account
Since actively managed mutual funds require daily human management, investing in one could come with higher management costs and fees than choosing a passively managed index fund. Also, note that many mutual funds will require a minimum investment, ranging from $500 to $3,000. Though some have no minimums whatsoever.
To start adding mutual funds to your portfolio, look for brokers that offer no transaction fees (these are commission fees for buying or selling a fund share) and low management fees (also known as expense ratios). For example, Fidelity Investments has over 3,400 mutual funds with no transaction fees, but keep in mind that some of Fidelity's mutual funds may require reaching specific funding thresholds. Its robo-advisor option, called Fidelity Go®, invests in zero expense ratio Fidelity Flex® mutual funds that do not charge management fees or, with limited exceptions, fund expenses.
Fidelity Investments
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go account, but minimum $10 balance for robo-advisor to start investing. Minimum $25,000 balance for Fidelity Personalized Planning & Advice
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go is free for balances under $10,000 (after, $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000). Fidelity Personalized Planning & Advice has a 0.50% advisory fee
Bonus
Find special offers here
Investment vehicles
Robo-advisor: Fidelity Go® and Fidelity® Personalized Planning & Advice IRA: Fidelity Investments Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®
Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Terms apply.
With E*TRADE, there are no transaction fees for over 4,400 mutual funds and with Charles Schwab, there are no transaction fees for over 4,000 mutual funds. Many of the expense ratios for Schwab's funds are extremely competitive, some as low as 0.05%.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
E*TRADE
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open an E*TRADE brokerage account; minimum $500 deposit to invest in robo-advisor platform Core Portfolios
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF and options trades; zero transaction fees for over 4,400 mutual funds; robo-advisor Core Portfolios charges 0.30% annual advisory fee
Bonus
For a limited time only: Get up to $3,500 when you open and fund a new eligible retirement or brokerage account within 60 days of account opening, using promo code: REWARD22. Deposit minimums start at $10,000, and the more you deposit, the more you earn. Offer ends Mar. 1, 2022
Investment vehicles
Robo-advisor: E*TRADE Core Portfolios IRA: E*TRADE Traditional, Roth, Rollover, Beneficiary, SEP and SIMPLE IRAs, IRA for Minors and E*TRADE Complete™ IRA Brokerage and trading: E*TRADE Trading Other: E*TRADE Coverdell ESA (Education Savings Account), Custodial Account for minors and small business retirement plans
Investment options
Stocks, bonds, mutual funds, CDs, ETFs, options and futures
Educational resources
Educational library includes in-depth articles and videos for any type of investor
Terms apply.
Robo-advisors like Wealthfront, Betterment and SoFi will build you a portfolio of mutual funds (usually in the form of ETFs) based on your risk tolerance, time horizon and investing goals. Robo-advisors will rebalance your portfolio over time as you get closer to your investing targets and based on market conditions.
Wealthfront
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts
Fees
Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance
Bonus
None
Investment vehicles
Investment options
Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks
Educational resources
Offers free financial planning for college planning, retirement and homebuying
Terms apply.
Betterment
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.
Fees
Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee
Bonus
Up to $5,000 managed free for a year with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC
Investment vehicles
Robo-advisor: Betterment Digital Investing IRA: Betterment Traditional, Roth and SEP IRAs 401(k): Betterment 401(k) for employers
Investment options
Stocks, bonds, ETFs and cash
Educational resources
Betterment offers retirement and other education materials
Terms apply. Does not apply to crypto asset portfolios.
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