Mutual funds are the home of investing for beginners. Even so, investing in funds still scares many beginners and justifiably so, with the thousands of funds available today. Here we cut to the chase and specify the best bond fund and best stock fund for investing for beginners.
If you are new to the game, start investing small by putting money into just two different mutual funds: a bond fund and a stock fund. After all, stocks and bonds are the cornerstone of any investor portfolio, and mutual funds are the best way of investing for beginners. Now, I'll tell you what to look for in both categories to keep risk moderate and get your feet wet at the same time. Remember, our goal here is to keep it simple, not to discuss every type of bond fund and stock fund available.
The best bond fund to start investing with is a HIGH-QUALITY, INTERMEDIATE-TERM bond fund. If an INDEX variety is available that is no-load (has no sales charges) go for it. The bond fund I just described will be of moderate risk and pay a dividend yield that is middle-of-the-road. By eliminating long-term and low quality (high yield or junk) funds that pay the highest dividends, we've also taken the highest risk bond funds out of consideration. At the same time, we have eliminated short-term funds that pay considerably less income in the form of dividends.
By going with an index fund that is no-load, you keep the cost of investing at a minimum. Ideally then, the best bond fund for investing for beginners is a: no-load, high-quality, intermediate-term, bond index fund. With such a fund you own a very small part of a large diversified portfolio of bonds. Your total cost of investing can be less than ½% a year of the value of your investment.
The best stock fund to start investing with would be a no-load index fund as well, to avoid sales charges of about 5% off the top and/or 2% or more in yearly expenses. It would be a HIGH-QUALITY, LARGE-CAP, EQUITY INCOME fund. In such a fund you steer clear of riskier high-growth or small company stocks, both of which can be highly volatile; and pay next to nothing in dividend income. The very best stock fund I know of to get you situated in the major stocks in the U.S. market: an S&P 500 STOCK INDEX fund. With this fund you own a very small part of a large portfolio consisting of the 500 most valuable stocks in America.
Included in the above stock fund are the blue-chip company names we are all familiar with from Alcoa and American Express, GE, Microsoft, McDonalds... to the world's largest retailer. Investors here can expect to profit from higher stock prices in a rising market; plus earn dividends of about 2% a year or so.
If you put the same dollar amount into our best bond fund and best stock fund above you will further moderate your risk and have a very simple, yet basically balanced investment portfolio. Over the years, the big investment houses have traditionally suggested that their clients put 60% of their money in stocks and most of the rest in bonds. What could be easier investing for beginners than going with two low-cost mutual funds of the index variety?
