What You Need to Know About Mutual Funds


If breaking into investing is on your to-do list, you likely already know what a great option it is for securing a bright financial future and giving you fiscal peace of mind. If you’ve seen mutual funds pop up on your researching radar, you may be curious about what separates them from other types of investments- and with good reason. Sifting through complicated money jargon eats up a lot of time and can leave you more confused than you were before. That is why, I have written up a breakdown for you that will have you making an informed decision in no time at all. It’s time to be in the know about your family’s financial security.

Back to Basics: Understanding Mutual Funds

By definition, mutual funds combine the investment cash of folks just like you with your own, allowing a larger group of people to chip in on a portfolio all together. Depending upon the types that you choose, that portfolio will likely be made up of investment’s usual suspects, such as bonds, exchange trades, stocks, and the like.

When it comes to mutual fund options, research suggests that you have just under 20,000 varieties to choose from, but don’t let that number overwhelm you. Instead, focus on the broader categories to get a firm understanding of what works best. For example, equity funds base their backing on the size and worth of the organization, and money market funds are widely believed to keep your money more secure.

Why Choose Mutual Funds?

You might be wondering what makes this style of financing different from the rest. Truth be told, it’s all in the name—breaking up the cost of shares “mutually” among several individuals reduces the initial cost of investing, which makes it feasible for more people to get started. Beyond that, simplified access to such a wide variety of return-yielders makes for a very diverse portfolio, and diversity is the cornerstone of successful investment.

Additionally, you can expect a watchful eye to monitor your mutual funds (i.e. the fund’s professional manager), which lifts some of the researching and decision-making burden off your shoulders. If you don’t have a lot of time or money to kickstart your investment journey, mutual funds may be just what you’re looking for.

What Does it Take to Get Going?

So, if you’re considering jumping in, you’re going to want to know exactly what you’ll need before you do so. Generally speaking, you can expect to pay less for a company’s share via mutual fund than you would independently, with a going rate of about $2,500. This number may seem great at first, but don’t forget to count it against the large number of securities you will be investing in.

Aside from the cost of the investment itself (which, to some extent, is up to you and your financial goals), you might want to brace yourself for any potential fees you may run across. Advisory charges- or a cut the company takes to cover professional management services- are fairly common, as are “loads”, which are fees typically affiliated with selling off your shares of the fund. Loads can sometimes be applied when purchasing shares as well, so be sure you ask what fees apply before you get your heart set on a specific course of action.

What are the Cons?

Overall, mutual funds can be an excellent gateway into the world of investing. They can often offer lower-cost minimums and can give you the option of having a financial professional guide you into the realm of returned dividends. In addition to being aware of your fees (paying too much out could make your portfolio worth less), another consideration you should make might just sneak up on you at the end of the year…

That’s right! It’s the amount that’s owed to the federal government, and it may be more than you think. You can expect to pay for any capital gains, which apply when you sell your shares, and to pay on the cash amount of dividends that you receive. While some of these tax amounts will be calculated by the parameters of your usual income tax bracket, capital gains can be taxed at a slightly lower rate that hinges on the length of your ownership. If you’re looking for an option to avoid this potential tax situation, one consideration would be to invest in mutual funds in a tax-deferred account, such as a 401(k) or a Traditional Individual Retirement Arrangement account (or IRA).

Investments in mutual funds are not FDIC-insured and are subject to fluctuation in value and market risk, including loss of principal. The investment return and principal value will fluctuate and shares, when sold, may be worth more or less than their original cost. For withdrawals from 401(k) accounts or IRAs prior to age 59 ½, income taxes and an additional 10% federal income tax penalty may apply. Other exceptions may apply.

Mutual funds are offered via prospectus only. For a prospectus, which contains more complete information including investment objectives, risks, charges, and expenses, please contact your financial professional. Please read the prospectus carefully before you invest or send any money.

Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC. Annuity and insurance products offered through AXA Network, LLC. AXA Advisors, AXA Network and AXA Equitable are affiliated companies and do not provide tax or legal advice. GE-140793(11/18)(Exp.11/20)

About Dayton & Sydney

Dayton & Sydney Wealth Strategies Group is a financial advisory company built on a legacy of hard work and customer service. As an elite producer group of AXA Advisors, we use a solid, innovative and long-term approach to help you accomplish your biggest dreams.

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