When saving for retirement, mutual funds are a great option for the person who is uncomfortable with investing or doesnt have the time or expertise to follow their own portfolio.

A mutual fund is a collection of stocks and bonds from a variety of companies managed by a brokerage firm. By investing in a mutual fund, the customer is already taking a step to diversify the portfolio and provide greater security in the volume of companies included in the fund. Essentially, the fund manager is doing the work of finding what to invest in and when to buy and sell.

Types of Mutual Funds for Retirement

There are as many different types of mutual funds as there are personalities. Accounts normally are grouped by stocks or bonds, large-cap or small-cap, or growth or value. There are even mutual funds called target-date funds that rebalance the stock and bond ratio each year depending on when the investor plans to retire. The hardest part about investing in a mutual fund may be choosing one.

Even though the very point of having a mutual fund is to let the brokerage firm manage the investment and keep a diverse amount of holdings in the fund, the customer should invest in more than one mutual fund. Each fund derives its strength from the type of holdings and the person who manages it. The customer has a better chance of keeping the portfolio stable and growing by choosing a variety of types of mutual funds including international stocks, bonds, and target-date funds.

Evaluating Mutual Funds for your Retirement Needs

If a person is choosing a mutual fund as part of the 401k or 403b program through an employer, the broker will have been chosen and the funds to choose from may be limited. However, there are still a few items to consider. First, mutual funds are ranked by a company called Morningstar. Rankings can be checked on their website for overall performance and quality of how the fund has been managed. A prospectus should also be available to provide background on the fund. Second, consider fees and how they will impact the funds overall performance. Some funds contain a load, or one-time percentage fee of 5-10%, for the person who provides financial advice targeted to the individual. In addition, funds charge about 1-3% per year as a fee for having the fund managed.

Once a person has chosen the fund to invest in, the account can be opened with usually $500-$1,000 depending on the fund and the brokerage house. Mutual funds make up all types of retirement accounts, including IRAs and 401ks, and tax deferred interest will apply. Funds are fairly liquid, meaning that they can be bought or sold within the day and the investor can receive payment the same day. Due to the fees involved with buying and selling funds, however, it is best to limit these transactions. There are no fees, however, for making deposits or withdrawals. This is a benefit both while savings are deducted from a paycheck on a regular basis and during retirement when withdrawals are required.