How Mutual Funds Can Work for Your Retirement

People save money for all sorts of things, but for many no goal gets more attention than retirement. And when it comes to retirement investment products for individual investors, mutual funds are perhaps the most popular. One reason is unavoidable: mutual funds are the dominant investment choice in highly popular 401(k) plans.

Although mutual funds might seem out of fashion given the increasing popularity of exchange-traded funds , there are practical reasons you would consider them as a core component of your retirement savings plan.

  • Diversification. A mutual fund typically holds a large number of securities, which provides diversification and the potential to minimize the volatility that comes with holding individual securities. Beware, however, that not all mutual funds are diversified, or they may specialize in a niche market segment or sector. That segment could do poorly, while the rest of the market does well. 
  • Systematic investing. With mutual funds, you can typically invest relatively small sums of money on an on-going basis. That can work well for investors who normally set aside a particular amount of money periodically, and it also aligns with a dollar-cost-averaging strategy. Dollar- cost-averaging usually means investing a set amount of funds during specific intervals.
  • Buying at net asset value (NAV). Although there can be restrictions associated with trading some funds, mutual funds generally are relatively simple to buy and sell through a brokerage or investment account at the end-of-day net asset value. The net asset value is the value of all securities and cash in a mutual fund, minus any fund costs. 
  • Active management. Mutual funds are headed by a portfolio manager – who might be aided by a research team – who decides which securities to hold.
  • Variety. Mutual funds come in many varieties, allowing you to build a portfolio that helps accomplish the principles of asset allocation. For example, if you want a conservative portfolio, you might consider tilting your portfolio heavily toward bond funds. If you’re willing to take more risk, you might consider including a larger concentration of stock funds. You can even examine breaking down a broad asset class – such as stocks – into sub-classes by purchasing funds that specialize in securities such as small company stocks or long-term Treasury bonds.

Getting Started

Finding the right mutual funds for your retirement savings program can be challenging, considering that there are thousands to choose from. As a starting point, you can use a screening tool that allows you to find funds based on many factors.

Scottrade offers a screening tool that lets clients filter among thousands of mutual funds by a variety of categories. In addition, clients can access a much smaller Select List of mutual funds, developed by independent experts. Both the screener and Select List are available by logging in and going to the Quotes & Research section. Not a client? You can access this screening tool.

Question: How much time do you spend managing your finances?

Next Step: Our retirement savings calculator can help you determine whether you’re on track to meeting your goals.

Investors should consider the investment objectives, risks, charges and expenses of a mutual fund before investing. Mutual funds are subject to market fluctuation, including the potential for loss of principal. A prospectus contains this and other information about the fund and may be ordered through or through a Scottrade branch office. The prospectus should be read carefully before investing.

The mutual funds selected for the Select Lists have been derived from a universe of mutual funds maintained by third parties for their own proprietary research products and services. Particular funds on the Select List may not be appropriate investments for you under your circumstances, and there may be other funds or investment options offered by Scottrade that are more suitable. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision.

The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

Diversification does not assure a profit, or protect against loss, in a down market.

More Articles & Insights

As You Look Toward Retirement, Keep Your Goals in Mind

Keeping your retirement goals top of mind is key to keeping your strategy on track, regardless of your age.

There’s Still Time to Save for Retirement

If you’ve fallen behind on your retirement savings, don’t sweat it. There are steps you can take to get on track.

Self-Employed Can Consider These 401(k) Alternatives

Self-employed individuals have access to tax-advantaged retirement plans designed specifically for them.