The simple answer is a lot! When you read about personal finance and investing, one of the most common investments you will read about are mutual funds. Mutual funds have been very popular investment vehicles for a significant amount of time for good reason. They offer professional management of your money, they are typically well diversified, and offer decent returns historically. One problem has always been with the amount of mutual funds out there it is hard to determine where you want to invest your money. Even harder is comparing one fund to another. Sure there are many sites which offer search tools which will search based upon the 1, 5, and 10 year mutual fund performance.
One thing that you have to remember when looking at funds is that they all have fees which you will need to consider as well. Comparing both performance and fees may sound like a daunting task, but it is necessary to ensure your account grows (and thus your wealth) as much as possible over time. More recently there have been more alternatives to traditional mutual funds which offer lower expenses than a traditional (typical) mutual fund such as Exchange Traded Funds which track a market indices such as SPY which tracks the S&P 500 index, or Index Funds. These alternatives have forced some funds to offer lower management fees. Additionally, there are companies such as Vanguard which have come out with a series of Vanguard funds which offer very low management fees and have a pretty good track record of performance (depending upon which fund(s) you choose.
One site you can use to compare mutual fund performance and fees is found on the Vanguard site. Another can be found at the financial regulator FINRA site. Another thing to be weary of are funds which advertise their performance, but charge large up front fees. These fees can take a huge chunk out of your investment up front (thus causing you to miss out on years worth of interest accumulation/earnings). This can have a dramatic impact upon your portfolio/investments over time. The best structure in this author’s opinion is what is known as a no-load mutual fund which does not charge a fee on the front end. You will still need to look for a fund with a low annual management fee for the exact same reason, but you can do it. Those management fees will eat away at your capital and thus take money out of your account, which could have been invested for many years to come earning you additional interest. These fees are an extremely important part of choosing a mutual fund investment and should not be overlooked.
To complicate things even further many funds have a back end fee or redemption fee which is charged upon withdrawal from the account (in the future). These can be negative too, however, if they are not too prohibitive it is far better to have a 2% fee hit you on the way out after growing your account than on the front end of a 10-20 year investment (investment range can vary, but you see the point). For example, if you had $50,000 to invest today and found a fund with a 2% front end fee, this would take $1,000 out of your account immediately leaving only $49,000 to invest. That $1,000 invested would have amounted to $7,612 if it had earned 7% interest over 30 years time (the historical average of the stock market). This is only what you miss out on from an up front fee. Imagine if you were getting hit with 2% fees every year on this account. That amount would grow to an even larger amount which can really affect the growth of your account over time. The same holds true for whether you should prioritize tax friendly accounts such as a 401k or SEP IRA vs. a taxable brokerage account. The money that comes out in advance for taxes today and that gets taxed each year while you invest, is less money growing in your account over time. Our site offers a series of retirement calculators to illustrate these concepts to help solidify this in your mind and illustrate that there are in fact methods to financial success and growing your wealth. Learn them and use them and you shall have an abundance of wealth financially.