Guide to Mutual Fund Investments for Seniors

It's never too late to start investing, and mutual funds are a great choice for any investor. However seniors should be particularly aware of their investment horizons and risk tolerance when choosing a mutual fund.

Long term investing is an excellent tool for anyone looking to build wealth, no matter how old they are. Mutual funds are a great place to start. There are thousands to choose from, so there's something out there to meet the needs of any investor, old or young. However, seniors who are new to investing need to be very careful when choosing investments, due to their investment horizon, goals and risk tolerance. Here are a few things that seniors should keep in mind when choosing a mutual fund.

What is a Mutual Fund?

Basically, a mutual fund is a pool of the money of many investors that is then used to buy small amounts of many stocks or bonds. By combining forces, investors can own shares of hundreds or thousands of companies within one mutual fund, which provides diversification. Instead of putting all of your money into the stock of one or two companies, you can own smaller pieces of thousands of companies - that way, if one or two don't do so well, it doesn't affect you as much. Stock mutual funds buy different types of stocks, bond mutual funds buy many different types of bonds. There are also mutual funds called balanced funds, which buy some of each. Several mutual fund companies now offer Lifecycle or Target Retirement funds as well, which are automatically allocated and diversified according to the recommended risk level for their target audience. Each mutual fund has a different risk profile, which depends on the riskiness of the companies upon whose stock it is based.

Asset Allocation

The first thing that every investor should look at is his or her asset allocation. This term describes the balance between fixed income investments (like CDs, savings accounts and bonds) and equity investments (stock mutual funds) in a portfolio. Seniors need to pay special attention to the amount of risk that their asset allocation carries. The stock market is very volatile, and investors with a shorter investment horizon may not have time ride out the ups and downs. Seniors who cannot afford to lose any of their principal or who rely on a guaranteed return should probably stick with safe investments, like CDs or very conservative bond mutual funds. Seniors who are not as dependent on their savings can afford to be a little more aggressive.

Risk tolerance calculatorsbalanced fund (for example, Vanguard STAR) can be a great choice for a first-time investor. However, seniors may want to increase their bond allocation as they age, especially if they are risk-averse. Even a 100% allocation to bonds is not uncommon for seniors who need to preserve their capital. Seniors should also look for funds with low expenses and no upfront costs, as these fees eat into returns. can help you decide how much risk is appropriate for your age, income, net worth and investment horizons. The classic "balanced" asset allocation is 60% stocks and 40% bonds, and a

Why Should Seniors Invest in Mutual Funds?

Anyone who wants better returns than what they can get in CDs or savings accounts should invest in mutual funds. The key is choosing the right mutual fund for you. Seniors should decide on their goals (principal growth, steady income, principal preservation or some combination thereof) and find the mutual funds that will help them meet those goals.