Monday, 30 December 2019

If you're thinking of investing in mutual funds, you may wonder how to choose the right one. With thousands of funds, picking just one, or a few, may seem difficult.

Narrowing down the list should be easier when you realize that one size won't fit all. By using your financial goals and personal preferences to filter the choices, you can narrow your options and find the right fund(s) for you.

A mutual fund lets thousands of people invest their money in a portfolio — stocks, bonds, money market accounts, commodities, real estate, or a combination of all these — with distinct guidelines. Investors select funds based in part on their own near and long-term money goals. Personality and other factors often play a role in these choices as well.

Needs, time and risk tolerance

Life circumstances and investment timeframe provide a helpful starting point. A wealthy 65-year-old looking for steady income might not choose the same fund as a 25-year-old aiming to see assets beat the market over four decades.

Tied into those factors, investors also should think about how much risk they can take.

Risk tolerance measures your comfort level with market swings. Are you willing to see investments lose value when the market dips? Funds with the potential for higher returns tend to come with higher risk, while moderate or conservative options often mean smoother sailing and more muted gains.

Risk tolerance calculators can help you define how aggressive, moderate or conservative an investor you are. (These terms have nothing to do with your politics; they define the way you balance your needs for financial security and growth.) Your goals, timelines and personal psychology play a role in this.

Conservative, moderate or aggressive

That investor approaching retirement might look for conservative holdings — perhaps a fund focused on stable blue-chip stocks that pay high dividends, or a fund with highly- rated bonds.

Someone with longer investment and earning timelines may put their money into more aggressive funds focused on younger, high-growth tech firms that bring greater risk and potentially higher returns.

And those looking for something in the middle might choose a moderate portfolio, perhaps one that spreads their investments, and risk, among a broad array of stocks and bonds.

Specialized funds

Many investors also consider what types of ventures they want to support or avoid. A variety of mutual funds can help do that.

If you'd like to invest in real estate without the risks of owning and managing properties, you might consider a REIT (real estate investment trust) fund.

You also may see healthy returns with sustainable investing that aligns with your values. Socially responsible funds often avoid the fossil fuel, firearms and tobacco industries, choosing instead companies committed to green energy, human rights and good corporate citizenship.

Other points, including fund costs and balance minimums, also steer investors as they decide where to place their money. Your values, financial needs, investing timeline and risk tolerance can shape your choices. By taking these factors into account, you should be able to find the right mutual fund to suit your needs.

To get started selecting a suitable mutual fund for you, get in touch with BBVA Investments, a Division of BSI. 

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

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