About 52% of U.S. households own mutual funds, according to the Investment Company Institute. That's almost 70 million households trusting these pooled investments to build wealth. If you're searching for the best mf to invest in, you're joining a huge crowd.
Mutual funds let you buy a slice of dozens or hundreds of stocks or bonds with one purchase. That diversification can lower the risk that any single bad stock wrecks your portfolio. For many beginners, mutual funds are the simplest way to start investing.
This guide walks through the categories most beginners pick, what to look for, and how to open an account that lets you buy them. Past performance doesn't guarantee future results, so think of this as a starting framework, not a stock tip.
Our Top Picks
These are commonly available, low-cost options that beginners often consider. They are not personal recommendations, just well-known funds that show up on most brokerage platforms.
- Brokerage account: Robinhood for a clean mobile-first experience and access to many fund types
- Total market index fund: Fidelity ZERO Total Market Index Fund (FZROX)
- S&P 500 index fund: Vanguard 500 Index Fund Admiral Shares (VFIAX)
- Low-cost S&P 500 option: Schwab S&P 500 Index Fund (SWPPX)
- Target-date fund: Vanguard Target Retirement series (year-based)
These funds tend to have low expense ratios and broad diversification, which is why they appear on so many beginner lists.
Robinhood
Robinhood
Robinhood is a trading platform that brings stocks, ETFs, options, futures, prediction markets, crypto, and retirement accounts together in one app.
Standout feature
One platform for stocks, ETFs, options, futures, prediction markets, and crypto
Fees
$0 commission on stocks, ETFs, and options.
Pros
Zero-commission trading on stocks, ETFs, and options
Cons
Best perks (high APY, lower margin rates) require Gold subscription ($5/month)
What a Mutual Fund Actually Is
A mutual fund pools money from many investors and buys a basket of securities. A fund manager or computer algorithm decides what goes in the basket based on the fund's stated goal.
When you buy a share, you own a tiny piece of every holding in that basket. If the fund owns 500 different stocks, you instantly have exposure to all 500.
Mutual funds price once a day after markets close. That's different from ETFs, which trade like stocks all day long.
Categories Beginners Usually Start With
There are thousands of mutual funds, but most fall into a handful of buckets that matter for new investors.
Index Funds
Index funds track a market benchmark like the S&P 500 or the total U.S. stock market. They don't try to beat the market, they try to match it.
Because no expensive manager is picking stocks, expense ratios are very low, often under 0.10%. Many studies show that most actively managed funds fail to beat their index over long periods, which is why index funds dominate beginner portfolios.
Target-Date Funds
A target-date fund picks an asset mix based on the year you plan to retire. A 2060 fund holds mostly stocks today and gradually shifts toward bonds as 2060 approaches.
This hands-off approach can work well for retirement accounts. You pick one fund and the manager handles the rebalancing for you.
Bond Funds
Bond funds hold government, municipal, or corporate debt. They typically offer lower returns than stock funds but with less volatility.
Most financial planners suggest adding bonds as you get older or closer to needing the money. They can help cushion a portfolio during stock market drops.
Sector and Specialty Funds
These funds focus on one industry like technology, healthcare, or energy. Returns can be higher, but so can losses when that sector slumps.
New investors usually keep these as a small slice of the portfolio, not the foundation.
What to Look at Before You Buy
A fund name doesn't tell you much. Here's what actually matters when comparing options.
Expense Ratio
This is the yearly fee charged as a percentage of your investment. A 1% expense ratio on $10,000 costs you $100 each year, even if the fund loses money.
Index funds often charge under 0.10%. Actively managed funds frequently charge 0.50% to 1.50%. Over 30 years, that difference can cost six figures.
Minimum Investment
Some funds require $1,000 or $3,000 to start. Others, including most ETF-style mutual funds bought through brokers, let you start with whatever amount you want.
Historical Performance
Look at 5-year and 10-year returns, not just the past year. One hot year often comes from luck. Long-term records show more about the strategy.
Again, past performance doesn't guarantee future results, but it does give context.
Tax Efficiency
Index funds tend to be more tax-efficient than actively managed funds because they trade less. In a taxable account, that matters. Inside a 401(k) or IRA, it matters less.
How to Buy Mutual Funds Through a Broker
You need a brokerage account to buy most mutual funds outside of a workplace 401(k). Opening one usually takes 10 minutes and asks for your Social Security number, address, and bank info.
Mobile brokers like Robinhood have made the process simple for first-time investors. You can read more in our Robinhood review to see how the platform handles fund and ETF purchases.
Once funded, you search the fund by ticker symbol, choose how much to invest, and place the order. The order typically fills at the next end-of-day price.
Common Mistakes New Mutual Fund Investors Make
Chasing last year's winner is one of the biggest. A fund that returned 40% last year may underperform for the next five years.
Ignoring fees is another. A high expense ratio compounds against you year after year.
Selling during a market drop locks in losses. Most long-term wealth comes from buying through downturns, not running from them.
Frequently Asked Questions
How much money do I need to start investing in mutual funds?
It depends on the fund. Some traditional mutual funds require a $1,000 to $3,000 minimum. Many brokers now offer fractional shares of ETFs and ETF-style funds that let you start with as little as $1. Workplace 401(k) plans often allow contributions of any amount.
Are mutual funds safer than individual stocks?
Mutual funds spread your money across many holdings, which lowers single-stock risk. They are not risk-free though, since the whole market can drop. They tend to be lower risk than buying one or two individual stocks, but they still go up and down with the market.
How often should I check my mutual fund performance?
For long-term goals like retirement, checking once or twice a year is usually enough. Daily checking can lead to emotional decisions that hurt returns. A yearly review to confirm your asset mix still matches your goals is a healthy habit.
Can I lose all my money in a mutual fund?
Losing everything is unlikely in a diversified fund because that would require every holding to go to zero at once. You can still lose a significant chunk during a market crash. That's why most planners recommend a long time horizon and an asset mix that fits your risk tolerance.
