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7 Tips to Choose Mutual Funds for Seniors

Investing in mutual funds is a great way for seniors to manage finances and ensure a flow of income. It can help one earn a few extra bucks, making it easier to manage daily expenses. That said, deciding which mutual funds to invest in can be tricky as there isn’t a one-size-fits-all approach. Some funds are ideal short-term investments, while others can be more profitable if purchased for the long term.

7 Tips to Choose Mutual Funds for Seniors

Types of retirement mutual funds
A mutual fund that provides regular income can be classified as a retirement income fund. Its three common types are balanced funds, bond funds, and dividend funds.

  • Balanced funds
    This type of mutual fund is well-diversified with both stocks and bonds. It aims to balance growth by mixing stocks for stability and bonds for income generation. A balanced fund’s target allocation between stocks and bonds is usually stated in the fund’s prospectus.
  • Bond mutual funds
    Seniors who buy bond mutual funds own fixed-income assets, such as corporate bonds, government bonds, municipal bonds, or a combination of all. When someone invests in this fund, they typically lend money to the bond issuer in exchange for periodic interest payments and the return of the principal amount at maturity. Through investment in a vast portfolio, bond funds spread investment risk across various issuers, maturities, sectors, and credit ratings.
  • Dividend funds
    Seniors and other investors who buy dividend funds own stocks of companies that regularly pay dividends to shareholders. The objective is to generate income from the dividend payments and capital appreciation of stocks. It is advisable to invest in mature and stable public companies with a track record of payout consistency. Dividend funds usually target stocks with higher dividend yields and look to offer investors attractive income potential.

Choosing mutual funds for seniors
Any financial investment can be risky, so one must research and plan well before choosing mutual funds.

  • Set a budget
    One of the first steps in selecting a mutual fund is to decide on a budget or how much one can afford to invest. Most funds have a minimum investment amount ranging between $500 to $3,000, but there are options that allow people to invest a minimum of $100. A select few have a minimum value of $0, meaning one can start with just $1. Setting a budget will help seniors invest a decent amount while ensuring they have money for other things, like groceries and utilities.
  • Pick between active and passive funds
    Actively managed funds are handled by experts who purchase and sell investments to ensure profitability. On the other hand, a passively managed fund tries to automatically mirror the performance of a market index to boost returns. Since passive funds do not require a fund manager’s intervention, they are typically cheaper and perform better than actively managed funds, especially in the long term.
  • Determine risk tolerance
    A younger investor might have the financial flexibility to ride out the stock market’s highs and lows. But the closer one gets to retirement, the more it makes sense to hold conservative investments. That’s why seniors might want to look at more stable mutual fund investments, which could offer a steady flow of profits. For instance, fixed-income funds are more conservative, while balanced and dividend funds are usually aggressive. Still, the final decision lies with the investor.
  • Research the fund’s performance
    Before investing in mutual funds, one should research their performance over different periods in the past. One must look for consistent returns and compare a fund’s performance against its benchmarks or peers.
  • Use a mutual fund calculator
    Since investing in a mutual fund is never free from risk, seniors should think before investing. These days, many online mutual fund calculator tools help investors generate an estimated return for a select number of investment plans. One could use these tools to plan future financial strategies.
  • Consider asset allocation
    If someone is just starting with mutual fund investments, asset allocation is a crucial concept to learn. It implies that individuals should invest in different areas of the stock market, typically by looking at a market index. Another option is to explore mutual funds focusing on geography, varied company sizes, or specific sectors. This could be beneficial, especially if one is already invested in a broad market.
  • Account for fees
    A mutual fund company earns by charging different types of fees from investors. Some may charge a sale fee known as a load, applicable at the time of buying or selling of the investment. Similarly, there are other fees associated with mutual funds, and one should account for them before investing.

Top mutual funds
While one could do all the research to find the best mutual funds, it is always advisable to consider reputable options.

  • Vanguard Wellington Fund (VWELX)
  • Schwab Balanced Fund (SWOBX)
  • American Funds Tax-Aware Conservative Growth and Income Portfolio (TAIFX)
  • PGIM High Yield Fund (PHYZX)
  • iShares TIPS Bond ETF (TIP)
  • Dodge and Cox Income Fund (DODIX)
  • Vanguard Long-Term Tax-Exempt Fund (VWLTX)
  • BBH Limited Duration Fund (BBBMX)
  • Vanguard Target Retirement 2025 Fund (VTTVX)
  • Schwab International Index Fund (SWISX)
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