You know you want to buy mutual funds to plan your retirement or some other big goal. However, deciding which online platform is best for mutual fund investing can be confusing.
First thing first: Personal finance experts recommend buying funds directly from mutual fund companies, not through a brokerage account. Why? You save money. The exception, of course, is that the brokerage account is maintained through a mutual fund company. For example: buy Fidelity Fund from Fidelity Investments, buy Vanguard Fund from Vanguard Group, etc.
Next, you should look for the tools the broker offers – what mutual funds are on their platform, the fees the broker charges, including early redemption fees, among other factors. In terms of expenses, expect a higher expense ratio for actively managed accounts — managed by one or a group of people who choose to invest and try to beat the performance of a particular market — than passive index funds designed to do this. Taking these factors into consideration should help you decide which broker is your best bet for investing in mutual funds.
Here are the best online mutual fund brokers:
- Loyalty Investment
- Carl Schwab
- Electronic Trade Finance
- Investment allies
- Avant-garde groups
- TD Ameritrade
- Interactive Brokers
- Merrill Edge
Overview: Top Online Mutual Fund Brokers for June 2022
Loyalty Investment
Fidelity Investments launched four free funds in 2018, becoming the first financial firm to offer a free ratio mutual fund amid an ongoing price war. These funds are: Fidelity Zero Total Market Index Fund, Fidelity Zero International Index Fund, Fidelity Zero Large Cap Index Fund and Fidelity Zero Extended Market Index Fund. All Fidelity funds are free of transaction fees as long as you hold the funds for at least 60 days.
The Boston-based fixed-income giant has long been a well-known name in mutual funds, and it also offers more than 3,400 trading-fee-free mutual funds. With the long-established broker, you have access to a wealth of research, screening tools and its namesake mutual funds, such as the legendary Magellan Fund. You can also port all your financial accounts to a so-called full view feature to see all your finances in one place, similar to budgeting apps like Mint.
- Minimum account opening amount: $0
- Standard pricing: Free for Fidelity funds and other funds, no transaction fees, $49.95 to buy, $0 to sell funds, no transaction fees for Fidelity
- Mutual Fund Highlights: Offers four free index funds, over 3,400 free mutual funds.
Carl Schwab
Charles Schwab is credited with pioneering low-cost investing in the 1970s, and the firm’s prices remain competitive today. At Charles Schwab, you have a wide range of mutual funds with no sales commissions – over 4,200 mutual funds with no encumbrance and no transaction fees.
However, if you don’t use the funds, the fees are steep: brokers can charge up to $74.95. Like many of its competitors, Charles Schwab requires no minimum account opening or getting started. Schwab’s excellent customer service, robust brokerage platform and extensive research make it a solid choice.
- Minimum account opening amount: $0
- Standard pricing: $0 for funds with no transaction fees; otherwise up to $74.95 when buying other funds
- Mutual Fund Highlights: Over 4,200 Free Mutual Funds with No Transaction Fees
Electronic Trade Finance
E-Trade offers over 4,400 mutual funds without debit cards and transaction fees. The list includes more than 120 Vanguard funds from one of the low-cost leaders in the field. If you move out of these free trading funds, E-Trade charges a $19.99 commission, which is in the middle of its competitors.
At E-Trade, you also have access to research and tools to help you make investment decisions. E-Trade’s filters help you find what you’re looking for quickly, with the ability to search for funds by expense ratio, performance, yield and many other categories. Click on a fund’s link and you’ll get detailed information about it, including its top holdings, costs and annual performance.
- Minimum account opening amount: $0
- Standard pricing: $0 for no-transaction fee credits, and $19.99 for no-debit/transaction fee credits
- Mutual Fund Highlights: Over 4,400 Free Mutual Funds with No Transaction Fees.
Investment allies
Ally Invest provides access to over 12,000 mutual funds. While its standard mutual fund commissions are much cheaper than some of its competitors, the broker doesn’t offer funds without transaction fees. Instead, non-loaded mutual funds have a flat fee of $9.95 to buy and sell, while funds with sell loads can be bought and sold for as little as $0.
As a financial institution with no branches, Ally is very focused on its digital experience. Ally Invest’s sister brand, Ally Bank, has won numerous awards, including Bankrate’s Best Online Bank of 2021. The company also has a solid reputation for customer service.
- Minimum account opening amount: $0
- Standard Pricing: $9.95 with no-load funds
- Investment Fund Highlights: Investment Fund Commissions Are Cheaper Than Many Competitors.
Vanguard
Founded in 1975, Vanguard Group has long been known for its low-cost index funds. The legendary founder, the late John C. Bogle, is credited with launching the first retail index fund. The fund is now known as the Vanguard 500 Index Fund.
As a Vanguard client, you don’t have to pay transaction fees for Vanguard’s 160 mutual funds. The firm also offers more than 3,000 transaction fee-free mutual funds for non-Vanguard funds. You pay between $8 and $20 per trade for other funds available on the platform, although accounts with more than $1 million in Vanguard funds get the first 25 trades for free.
Although best known for index investing, Vanguard also offers actively managed funds.
- Minimum amount to open a brokerage account: $0
- Standard pricing: Free for family funds and other funds, no transaction fees; $0-20 for others, depending on vanguard assets
- Highlights of public funds: famous for low-priced index funds
TD Ameritrade
TD Ameritrade has more than 3,700 mutual funds with no transaction fees, giving investors a variety of free options. The broker’s screening tool will help you sift through these bountiful funds, although it’s not as helpful in separating the wheat from the chaff. However, each fund’s page provides a comprehensive overview of the security, including performance data across multiple time periods, top holdings and other key fund information.
Still, TD Ameritrade’s top-notch listing screen helps you focus on low-cost, no-fee mutual funds using Morningstar’s data (updated quarterly). If you’re looking for a variety of other types of investments, TD Ameritrade has you covered as well. In addition to the usual stocks, bonds and funds, the broker also offers futures and foreign exchange to provide comprehensive quotes.
- Minimum amount to open a brokerage account: $0
- Standard Pricing: $0 for non-transaction fee balances and balances; otherwise $49.95 to $74.95 for no-load funds
- Mutual Fund Highlights: Over 3,700 Free Mutual Funds with No Transaction Fees.
Interactive Brokers
It’s easy to forget that Interactive Brokers, which typically caters to more advanced traders and professionals, also offers something more popular with ordinary investors – 17,000+ funds with no trading fees! This is one of more than 45,000 funds in total, while other fee funds charge up to $14.95 per trade, and international fee funds charge €4.95 or equivalent.
The broker has expanded its mutual fund platform in 2020 and now offers investors the largest single venue to easily find mutual funds. Additionally, a range of asset classes (stocks, bonds, etc.) can be traded in 33 countries, making Interactive Brokers a truly ubiquitous broker.
- Minimum amount to open a brokerage account: $0
- Standard pricing: $0 for funds with no transaction fees; otherwise 3% of purchase value up to $14.95
- Investment Fund Highlights: Over 17,000 Trading Fee-Free Investment Funds.
Merrill Edge
Merrill Edge offers over 800 trading-fee-free funds that you can search using Merrill’s filters, or use the Select Funds option to build your portfolio from dozens of options that suit your company’s size and style. Each Merrill Lynch fund page provides an easy-to-read overview of key statistics, including Morningstar ratings, top holdings and annualized performance.
By using Merrill Lynch’s Automated Investment Plan, you can make your mutual fund investments feel like your 401(k) deductions. Choose your amount and schedule, you can buy with confidence, and you can change your plan at any time.
- Minimum amount to open a brokerage account: $0
- Standard pricing: $0, no transaction fee or debit balance; $19.95 transaction fee
- Highlights of public funds: more than 800 fee-free funds.
What is a mutual fund?
A mutual fund is a way of owning part of a larger portfolio that is held together with other investors. Mutual funds invest in many different companies, sometimes hundreds or even thousands. By purchasing a portion of the fund, you own a fraction of all its holdings. Therefore, mutual funds provide you with diversification and reduce risk compared to buying a few stocks.
The price of a unit of a mutual fund changes based on the net asset value it holds. If the value of its stocks or other assets increases, so does the value of the fund. The NAV is calculated after the market closes each trading day before investors can buy or sell the fund.
Mutual funds charge an expense ratio for their services, which covers the fund’s operating costs and generates profits for the fund management company.
Generally, you can buy and sell funds from any broker, although a family of funds like Vanguard may not always be listed on all brokerage platforms.
Should You Actively or Passively Invest in Mutual Funds?
By buying a mutual fund, you are hiring a fund manager to manage your money, so you should let the manager handle this task. Research shows that passive investing actually outperforms active investing on average, and unless you’re an expert, there’s no point in outperforming a professional.
Mutual funds can be either actively managed or passively managed, although they are usually associated with the former. Active managers try to outperform the market by finding undervalued stocks and buying and selling when the time is right. Since they are actively managed, these mutual funds tend to charge higher expense ratios.
By contrast, passively managed funds like index funds simply replicate an index, usually the S&P 500. They are just trying to match the performance of the index. Because of this approach, passively managed funds tend to charge lower fees than active funds.
Also, many mutual foundations charge an early redemption fee when you come in and out for a short period of time (usually 30 days or less). This is an added motivator for passive investing.
Who should invest in mutual funds?
Mutual funds are an excellent choice for all types of investors, from beginners to advanced. They provide an easy way to diversify your investments at a very low cost. That’s two reasons why they’re often used in popular retirement vehicles like 401(k) accounts or IRAs.
Diversified mutual funds can be very useful for investors who are just starting out and know very little about investing. In fact, investing legend Warren Buffett has long advised investors to buy index funds based on the S&P 500, and mutual funds do that easily.
How much does it cost to invest in mutual funds?
Mutual funds may require a minimum initial investment, typically $2,500 to $3,000, when purchasing a fund for the first time. After that, you may only need a small amount of money to continue investing in the fund. This makes it easier to continue buying the fund with regular donations.
However, if you buy in a 401(k), these minimum requirements are usually waived, and you can put any amount into the fund from any paycheck.
Finally, it should be noted that some mutual funds charge a sales fee or commission when you buy the fund. These problems can be easily avoided by looking for unencumbered mutual funds. Sales commissions are money that should go into your pocket, not the fund company’s money.
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