Where Should You Invest? Directly With A Mutual Fund Company

The question here is not “What should I invest in?” but instead, “Where should I invest?” You probably want to know your options, don’t you?

One option is to invest with a mutual fund company.

What’s a mutual fund company? It’s a company that has created at least one mutual fund that investors can invest in.

There are hundreds of mutual fund companies that have created mutual funds and are all trying to get your investment dollars.

Most mutual fund companies have not just one, but possibly hundreds of different mutual funds they’ve created that you can invest in. And all these mutual fund companies compete with other mutual fund companies to try to get investors to invest in their fund instead of their competitor’s fund. I could start the Robert Mutual Fund that invests in U.S. large cap stocks. But maybe my neighbor gets wind of this and thinks he could do a better job investing in U.S. large cap stocks. So he starts the Joe Mutual Fund, and now we’re both trying to attract investors into our mutual fund. There are hundreds of mutual fund companies that have created mutual funds and are all trying to get your investment dollars.

So, one option is for you to invest your money with a particular mutual fund company. For example, you may have heard of Vanguard. They are a company that provides mutual funds to clients. You can buy these mutual funds directly with them. You would just open an account by going to vanguard.com. You would then deposit money into your new Vanguard account, and then you could invest in any of the mutual funds that Vanguard offers.

Let me ask you this, though.

If you had an account at Vanguard, where they sell Vanguard mutual funds, could you buy shares of an individual stock? For example, could you buy shares of Nike through Vanguard? No. It’s like going to a Honda car dealership and asking if you can test drive the new Toyota Prius. Not going to happen. The Honda car salesperson will be more than happy to let you drive a Honda Accord hybrid, but they don’t sell Toyotas. Same is true at Vanguard. They have their own mutual funds. They are not going to sell individual stocks or their competitor’s mutual funds. They will sell just their own funds.

So why would anyone want to open an account directly with a mutual fund company?

Well, maybe you are a big fan of Vanguard mutual funds, and you don’t ever want to buy individual stocks or bonds, and you don’t ever want to buy a mutual fund from a different company. That could work. The advantage is when you buy a mutual fund directly through the mutual fund company itself, you don’t have to pay a transaction fee, which can be $10, $20, $50, or more. That’s certainly an advantage.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.