You might be considering starting to invest in mutual funds for retirement. These professionally managed investments allow you to pool your money with other investors to buy different types of investments.
Because of this, they can be good alternatives to individual stocks and help reduce your risk and potential costs. You may also find them easier to deal with than trying to go at the market alone.
Financial expert Dave Ramsey is a huge fan of them, but as with his other advice, certain critics disagree with at least a bit of what he suggests.
Here’s a look at five of Ramsey’s strategies that may benefit you.
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Growth and income
Ramey said these funds can create a secure foundation for your portfolio. After all, these are large and well-known companies in America.
Given that they’ve been around for a long time and offer things people use regardless of the economy, some may call them big and boring.
You could think of them as calmer investment options. They tend to rise and fall much more slowly than others. Many financial advisors suggest having stable funds like these to protect your investments.
They may also be good if you do not want to put too much risk into your investments and use more secure strategies.
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Growth
You can consider this strategy as you try to grow your gains. It features medium- or large-sized companies in the U.S. that are experiencing growth.
You may also want to have a higher risk tolerance regarding these funds since they’re more likely to see changes alongside the economy than growth and income funds.
Many financial advisors may suggest these funds if you carefully weigh the risks with your potential rewards.
Aggressive growth
You may be up for a wild ride regarding your mutual fund strategy. If so, Ramsey's aggressive growth approach may be just for you. As the name implies, this is one where you may see big highs and big lows.
You may have a higher risk tolerance and want to pursue this strategy to see more significant growth than you may experience with less risky options.
These funds usually look at smaller companies with potential, but your financial advisor may suggest this strategy if you want the possibility of enormous growth — albeit significant risk.
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Let’s say you want to invest $250, as an example.
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International
You can also take an international approach and spread out some of your risks by considering large non-U.S. companies to open yourself up to new possibilities.
Be sure you’re investing in foreign or overseas funds here, and remember that these are not world or global funds that combine U.S. and international stocks. Some advisors might find these too risky to suggest to clients looking for more passive strategies.
Diversification
Ramsey discusses these different fund strategies under the broad umbrella of being diversified. He typically advises an investor to look at many types of funds to help spread the risk and minimize potential losses from stock market ups and downs.
At its basic level, according to Ramsey, diversification is spreading your money across different types of investments. This is a general guideline embraced by many financial advisors.
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Benefit gaining
According to Ramsey, there are several big benefits to investing in mutual funds — instant diversification, lower overall costs, and active professional management are just a few.
Ramsey suggests evenly spreading your investments among growth and income, growth, aggressive growth, and international mutual funds and investing in mutual funds through retirement accounts.
Not everyone agrees with this approach, though, particularly about evenly spreading your investments among the different types.
Bottom line
Mutual funds can help with retirement investments. However, it's essential to consider a few growth strategies to build wealth and diversify investments.
You'll find many decent mutual fund options, but Ramsey advises talking to a financial expert for guidance as you invest.
You may discover some other options that are better for your situation and will offer the investment mix you are looking for with your money situation, contributing to a stress-free retirement.
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