Mutual Funds

All investments involve some degree of risk when purchasing securities such as stocks, bonds, or mutual funds -- and the actual risk of a particular mutual fund will depend on its investment strategy, holdings, and manager competency. Unlike deposits at FDIC-insured banks and NCUA-insured credit unions, the money invested in securities typically is not federally insured."}},{"@type": "Question","name": "Can Mutual Fund Shares Be Sold at Any Time?","acceptedAnswer": {"@type": "Answer","text": "Yes, mutual funds are considered liquid assets and shares can be sold at any time. While mutual funds themselves only price their shares once per day based on net asset value, investors are able to place orders to sell their mutual fund shares at any time. Review the fund's policies regarding exchange fees or redemption fees. There may also be tax implications for capital gains earned with a mutual fund redemption."}},{"@type": "Question","name": "What Is a Target Date Mutual Fund?","acceptedAnswer": {"@type": "Answer","text": "When investing in a 401(k) or other retirement savings account, target-date funds, or life-cycle funds, are a popular option. Choosing a fund that is dated around retirement, like a hypothetical FUND X 2050 (which would target a 2050 retirement year), the fund promises to rebalance and shift the risk profile of its investments, commonly to a more conservative approach, as the fund approaches the target date.

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Mutual Funds

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Yes, mutual funds are considered liquid assets and shares can be sold at any time. While mutual funds themselves only price their shares once per day based on net asset value, investors are able to place orders to sell their mutual fund shares at any time. Review the fund's policies regarding exchange fees or redemption fees. There may also be tax implications for capital gains earned with a mutual fund redemption.

When investing in a 401(k) or other retirement savings account, target-date funds, or life-cycle funds, are a popular option. Choosing a fund that is dated around retirement, like a hypothetical FUND X 2050 (which would target a 2050 retirement year), the fund promises to rebalance and shift the risk profile of its investments, commonly to a more conservative approach, as the fund approaches the target date.

Mutual funds are investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities that might be difficult to recreate on your own. This is often referred to as a portfolio. The price of the mutual fund, also known as its net asset value (NAV) is determined by the total value of the securities in the portfolio, divided by the number of the fund's outstanding shares. This price fluctuates based on the value of the securities held by the portfolio at the end of each business day. Note that mutual fund investors do not actually own the securities in which the fund invests; they only own shares in the fund itself.

In the case of actively managed mutual funds, the decisions to buy and sell securities are made by one or more portfolio managers, supported by teams of researchers. A portfolio manager's primary goal is to seek out investment opportunities that help enable the fund to outperform its benchmark, which is generally some widely followed index, such as the Standard & Poor's 500. One way to tell how well a fund manager is performing is to look at the returns of the fund relative to this benchmark. Note that while it may be tempting to focus on short-term performance when evaluating a fund, most experts will tell you that it's best to look at longer-term performance, such as 3- and 5-year returns.

As a mutual fund investor, you get the benefit of having a professional manager reviewing the portfolio on an ongoing basis. Professional portfolio managers and analysts have the expertise and technology resources needed to research companies and analyze market information before making investment decisions. Fund managers identify which securities to buy and sell through individual security evaluation, sector allocation, and analysis of technical factors. For those who have neither the time nor the expertise to oversee their investments, this can potentially be invaluable.

The securities held within the portfolio often pay dividends or interest. Securities can also be sold by the fund manager after rising in value. These types of events can help generate income for the fund, which by law must be paid out to investors in the form of periodic distributions. For the most part, investors who own shares in the mutual fund at the time these distributions are made are responsible for the taxes on that money. However, the income from funds that invest in municipal bonds may be exempt from federal, and in some cases, state taxes.

There are a variety of fees that may be associated with some mutual funds. Some funds come with transaction charges for buys and sells or commissions known as loads. And there are funds that charge a redemption fee if you sell shares you've only owned for a short time. Investors also pay ongoing expenses to cover the cost of operating and managing the fund (what's known as the fund's "expense ratio"); this includes investment advisory fees (paying the fund manager and the research staff), as well as the portfolio manager's transaction costs associated with buying and selling securities within the fund. When evaluating a fund, remember that fees play a factor and may potentially detract from a fund's performance over time. All Fidelity funds can be bought or sold with no transaction fees when you buy them through Fidelity.

Index ETFs offer the same low costs, broad diversification, and tax efficiencies as index mutual funds. Similar to conventional index mutual funds, most ETFs try to track an index, such as the S&P 500. The main differences are that ETFs provide real-time pricing and a lower minimum investment than an index mutual fund, because you can purchase as little as 1 share of an ETF. ff782bc1db