Strategies for Investing in Mutual Funds for Retirement

What Are Mutual Funds?

Mutual funds pool the money of multiple investors into one large fund of stocks, bonds and other securities, and they can be a cost-effective way to diversify smaller portfolios. Mutual fund investing can also provide access to professional money management services that otherwise might not be available. However, if you’re investing $500,000 or more, you may benefit from a different, more personalized approach.

Smart investors align their portfolio mix with their long-term goals and objectives, which can be difficult to do when investing in mutual funds. Since mutual funds are designed for a broad group of investors—each with their own individual goals—they can’t be tailored to your unique needs. Additionally, you have little control over the investments within the funds. Unlike working directly with a personal money manager, mutual fund managers aren’t available to help advise and personalize your investments. They simply invest based on the fund’s prospectus.

What Are the Types of Mutual Funds?

You have access to a whole universe of funds, so knowing the difference between them is crucial. Let’s review the common types of mutual funds you might use to bring diversity to your portfolio.

Specific asset-oriented funds:

These can include stock and bond funds, or funds more specific to a particular investment category like company size or investment style.

Index funds:

These funds are designed to mimic the performance of a market index like the S&P 500, NASDAQ, DOW Jones or other indexes.

Balanced funds:

These often feature an asset allocation comprised of a mix of different types of securities.

Income funds:

This type of fund focuses on income-generating investments such as dividend-yielding stocks, bonds or other fixed income instruments.

Specialty funds:

These might focus on specific sectors, regions, or socially responsible investment strategies.

Mutual funds fall into one of two categories: open-ended or closed-ended. Open-ended mutual funds have no restrictions on the number of shares they can issue to investors. Therefore, the fund will buy more of the underlying investments if demand increases. Each mutual fund share is valued based on the market value of the underlying assets, or net asset value (NAV).

On the other side is a closed-end fund, which has a fixed number of shares available for purchase. The NAV of closed-end funds is based on the value of assets in the fund and calculated regularly. However, the price it trades for on the exchange is market-driven, allowing a closed-end fund to trade at a discount or a premium compared to its NAV.

Investing in Mutual Funds in Retirement

Mutual funds may seem like a surefire way to diversify your portfolio, but they come with unexpected risks like a lack of personalization, surprise capital gains and even too much diversification. Before you add mutual funds to your $500,000+ portfolio, download this guide and discover the potential pitfalls you might face.

Then take the next step toward meeting your financial goals by speaking with one of our representatives. We’ll take the time to learn about your unique situation while answering your questions about mutual fund investing—plus much more, including:

Mutual Fund Fees

For investors with over $500,000 to invest, mutual fund fees can be more expensive than owning their underlying holdings directly. Mutual funds can have layered fees, and investors share in the funds’ overall gains and losses—sometimes leading to unexpected capital gains taxes.