Before you dive into your first investment in a mutual fund, there is plenty of planning to do. For most people, investing should be approached with a long-term perspective, because $1,000 now can become $10,000 when it comes time to retire. Not taking the time to plan your investments could mean a smaller nest egg.
Building a mock portfolio, with the investments you are considering, is a good way to begin understanding how asset allocation, fees and expense ratios will impact your investing approach. Morningstar offers a neat investment tool that examines your investment portfolio — revealing an overlap in terms of market exposure and showing the combined fees and expenses of these holdings.
With a rough idea of the mutual funds that will go into your portfolio, you can begin researching the various fund companies and brokerages through which you can buy shares of these mutual funds. It is important to record the trading costs for the various fund investments that you expect to make. Don’t forget any account maintenance fees that may apply.
Unsurprisingly, you should consider the fund companies and brokerages that will yield the lowest long-term costs. Consider reading up on reviews of these companies to get a better picture of the all-around service that you’ll receive as a client.
After that is done, decide what type of account you will use to invest in mutual funds. There are regular taxable accounts, retirement accounts and other savings accounts that will do the job.
Once these steps are taken, you are ready to make your first investment in a mutual fund.