What is my next step after investing in mutual funds?
Hi, I am not sure how long you have been invested or in what you invested - but if it has been a few months or a few years and you are invested in stocks (US and Global) then you should have seen reasonably good returns. If not, it could be that you are not invested in the right asset class or products.
The right way to invest towards any goal is to have a reasonable time frame, expect a reasonable rate of return and be invested according to your risk profile (Ability and willingness to take risk). You can make use of a mix of asset classes such as stocks (Higher return with higher risk) and bonds (Lower returns and lower risk).
As for buying a house- needless to say, if your cash flows allow it (For down payment and periodic mortgage payments) then you can also buy a house using a mortgage. If your plan is to buy a house using a down payment within in the next year or so then you may want to keep that money for the down payment in a fairly stable investment such as in savings account, a money market fund or short-term government bond fund. Anything in excess can be invested for the long term for higher returns.
There are many possible explanations as to why your assets in your mutual funds are not increasing. Some items to consider:
1. Have you invested your money with a broker, and are they taking a large commission each time you invest? If this is the case, your starting in a deficit, because the upfront commissions you might be paying.
2. The mutual funds you are invested in are not performing as expected. In which case your options should be reviewed. The market has been doing well as of late, perhaps your not invested as you thought you were. Seeking the advice of a fee-only fiduciary might be helpful to make sure you are invested appropriately.
From your question, I am not sure how long you have held your mutual funds nor what upfront fees were paid. Mutual funds can be expensive so if an upfront commission was paid it may take a while to get your investment whole again depending on the performance of the fund.
Your next step is to track the performance of your mutual fund. If it is not outperforming the corresponding index then it may be time to shift assets. If you paid an upfront fee or if there is a back end fee then most mutual funds will allow their shareholders to transfer to another mutual fund under the same family of funds within the same mutual fund company. If you are not subject to these fees then there are other alternatives to mutual funds that do not have the same commission structure and would still give you diversification.
Among alternatives to mutual funds that are structured differently and will also give you diversification: Unit investment trusts (UITs) are a fixed portfolio of securities usually with a 12 to 24 month term, therefore, no annual expenses only an upfront commission. Additionally, exchange-traded funds (ETFs) offer diversification and liquidity with lesser fees relative to mutual funds.
The bottom line is that mutual funds are not always the safe haven that they have been touted. The companies that manage mutual funds face a fundamental conflict between producing profits for their owners and generating superior returns for their investors. The best way to evaluate a fund is by digging a bit deeper into the fees and also looking at the turnover ratio prior to investing. It is important to understand the good and bad points. The probability of a successful portfolio increases dramatically when you do your homework.
Mutual funds offer a great way to invest money into a diversified portfolio of stocks and/or bonds. Once you have a foundation of those you can look at Exchange Traded Funds (ETFs) and invest in specific sectors that you think will out perform. After that I would consider individual stocks that would make good long term investments.