How to Invest in Mutual Funds

Due to the upswing in full service online brokers, investors now have more access to mutual funds than ever before. Full service brokers allow investors to buy and sell mutual funds on a dime. Traditionally, buying into a mutual encompassed purchasing directly from the agency; however, today investors can simply call up their broker or type in the ticker symbol to buy a fund online. There are many strategies to investing in mutual funds, ranging from monthly purchase plans to buying and selling quickly through a broker.

Monthly Purchase Plan

Monthly purchases are very popular with long term investors who use mutual funds in their retirement portfolio. By buying into mutual funds at a planned dollar amount, investors can dollar cost average their investments, buying more when the market is cheap and purchasing less shares when the market is more expensive.  Dollar cost averaging is at the center of long term investing ideology, in that buying over time allows the investor to nab bargain basement prices and average down the cost per share.

Unlike stocks which are prone to huge losses if the company sours, a mutual fund does well retaining value and makes a better dollar cost averaging plan. A change in mutual fund prices is never as monumental as an individual stock, thus long term purchases in an average rather than just one stock is a more sustainable investment plan.

Trading Mutual Funds

Online stock brokers now allow investors to buy and sell mutual funds quickly, within a few seconds if necessary. Though many people never take advantage of this trading technique, many others are highly profitable with buying and selling hot sectors through mutual funds. For example, an emerging markets fund will rally when the foreign markets are performing well. Trading mutual funds has grown popular as it has been made more readily available. Investors can now swap mutual funds as easily as stocks or any other security.

Online Brokers

Online brokers make buying and selling very easily. If you know the ticker of the mutual fund you would like to buy, it's as easy as buying stock. Typically, mutual funds transactions have higher expenses due to limited competition and a relatively small market compared to any other exchange, especially stock exchanges like the NASDAQ.  Small volume almost always means a higher commission cost.

Direct Investments

Mutual funds still solicit direct investments from investors through a variety of retirement and no retirement accounts. Buying into a mutual fund through a direct investment generally requires an investment of at least $1000 for most funds. Smaller or newer mutual funds are more likely to have lower entry purchases, sometimes as low as $250.  Other mutual funds also offer monthly investment types where the initial investment is lowered on the pretense that an investor will make a certain contribution per month or year to build a healthy investment. Direct investments incur zero commissions but require more paperwork and more work to make each investment.