Introduction

Whether you’re a regular reader of investing books or this is your first, Mutual Funds For Dummies, 8th Edition, which is thoroughly revised and updated, provides practical and profitable techniques of fund investing that you can put to work now and for many years to come.

Funds aren’t literally for dummies — in fact, they’re an incredibly wise investment choice for people from all walks of life. Mutual funds are investment companies that combine your money with that from many other people to create a large pool of assets that can be invested in stocks, bonds, or other securities. This book also extensively covers exchange-traded funds, which are like mutual funds except that they trade on a stock exchange when the financial markets are open. Because your assets are part of a much larger whole, the best funds enable you to invest in securities that give you low-cost access to leading professional money managers.

With the best money managers investing your nest egg in top-flight investments that match your financial goals, you can spend your time doing the activities in life that you enjoy and are best at. Funds should improve your investment returns as well as your social life!

I practice what I preach. All my investments that I’ve devoted to securities (stocks and bonds) are invested through funds. Why? For the simple reason that I’m confident the best fund managers that I recommend in this book can do a superior job (higher returns, less cost) than I can by researching and selecting individual stocks and bonds on my own.

I’ve enjoyed successfully investing in funds for more than 30 years and enjoyed seeing funds that I’ve invested in over the long haul appreciate 10-fold, 15-fold, or more in some cases. Consider recent decades’ top performing stocks — companies such as Activision Blizzard, Alphabet/Google, Amazon, Apple, BestBuy, Chipotle Mexican Grill, Costco, Idexx Labs, Intuitive Surgical, Microsoft, Monster Beverage, Netflix, Nike, Nvidia, Starbucks, Tesla, Tractor Supply, UnitedHealth, and Walmart. Many of these stocks have posted unbelievable long-term returns — rising 50-fold, 100-fold, or more. The beauty of the diversified funds I’ve been recommending for more than 30 years is that they have bought and held onto such outstanding stocks.

As a financial counselor, writer, and educator, I’ve helped investors make informed investing decisions with mutual funds and exchange-traded funds as part of comprehensive personal financial management. So I know the questions and challenges that you face when you invest in funds. I wrote this book to answer your fund-investing questions in plain English.

What’s New in This Edition

Life and the investment world change. Although the essence of what makes mutual funds and exchange-traded funds worthy of your investment dollars hasn’t changed since the last edition of this book was published several years ago, the fund industry has certainly seen new developments. In this newly updated eighth edition, here are the major amendments:

• Updated coverage of how mutual funds stack up to alternatives including exchange-traded funds, hedge funds, researching your own stocks and bonds, private money managers, creating your own fund, and so forth
• Opportunities and pitfalls investing in funds online with expanded and updated coverage of robo-advisors, websites, and investing tools and software
• Complete coverage of new investment tax laws and their impact on the best fund-investing strategies
• Explanation of new trends in the fund industry such as “factor” investing, ESG investing, investing in disruptive companies, and more
• Updates to the funds and resources that I recommend

How This Book Is Different

Many investment books confuse folks. They present you with some newfangled system that you never figure out how to use without the help of mathematicians and a Nobel laureate as your personal tutors. Books that bewilder more than enlighten may be intentional because their authors may have another agenda: to get you to turn your money over to them to manage or to sell you their pricey newsletter(s). Writers with an agenda may imply — and sometimes say — that you really can’t invest well, at least not without whatever else they’re selling.

Going another route, too many investment books glorify rather than advise. They place on a pedestal the elite few who, during decidedly brief periods in the history of the world and financial markets, managed to beat the market averages by a few percentage points or so per year. Many of these books (and their publishers) suggest that reading them shows you the strategies that led Superstar Money Manager of the Moment to the superlative performance that the book glorifies. “He did it his way; now you can, too,” trumpets the marketing material. Not so. Reading a book about what made Giannis Antetokounmpo or Luka Doncic a phenomenal basketball player or Shakespeare a great playwright won’t help you shoot a basketball or versify like these famous folks. By the same token, you can’t discover from a book the way to become the next Wall Street investment wizard.

Mutual Funds For Dummies, 8th Edition, helps you avoid fund-investing pitfalls and maximizes your chances for success. When you want to buy or sell a fund, your decision needs to fit your overall financial objectives and individual situation. Fund investors make many mistakes in this regard. For example, they invest in funds that don’t fit their tax situation.

This book also covers pesky issues completely ignored by other fund books. For novice fund investors, simply finding and completing the correct application in the blizzard of forms that fund companies offer can be a challenge. And if you invest in funds outside of tax-sheltered retirement accounts, you’re greeted by the inevitable headache from figuring out how to report distributions at tax time. This book puts you on the right path to avoid these problems.

The truth is, investing isn’t all that difficult — and funds are the great equalizer. There’s absolutely no reason, except perhaps a lack of time and effort on your part, why you can’t successfully invest in mutual funds and exchange-traded funds. In fact, if you understand some basic concepts and find out how to avoid major mistakes that occur for some fairly obvious reasons, you can be even more successful than most so-called investment professionals.

Foolish Assumptions

Whenever authors sit down to write a book, they have to make some assumptions about their audience, and I’ve made a few that may apply to you:

• You’re looking for sensible investments.
• You’ve done some research (or perhaps thought about doing some) on mutual funds and exchange-traded funds and found the thousands of fund choices to be a bit daunting.
• Your investment portfolio contains or has contained funds, and you’re looking for up-to-date information on how changes in the economy and financial markets can affect the decisions you make.

If one or more of these descriptions rings true, you’re in the right place. Mutual funds are a huge business, and they can be confusing. Today, thousands of mutual funds account for more than $27 trillion under management, and exchange-traded funds hold another $7 trillion. Although the basic principle behind funds sounds simple enough — pooled money from many individuals that’s invested in stocks, bonds, or other securities — you have to understand the different types of investments, such as stocks and bonds, and the way they work.

Unfortunately, you have too many individual funds from which to choose — hundreds of fund companies, brokerage firms, insurers, banks, and so on are selling thousands of funds. Even experienced investors suffer from information overload. Luckily for you, I present short lists of great funds that meet different needs.

And because no investment, not even one of the better funds, is free of flaws and shortcomings, I explain how to easily avoid the worst funds — and the numerous mediocre ones — that clutter the investment landscape. I also help you understand when investing in funds may not be appropriate for you and what your best options may be.

Icons Used in This Book

Throughout this book, you can find friendly and useful icons that enhance your reading pleasure and flag special types of information. So when you meet one of these margin-hugging doodads, consider the following:

This icon points out something that can save you time, headaches, money, or all the above!

The warning icon helps steer you away from mistakes and boo-boos that others have made when investing in funds. Something here could cost you big bucks if you don’t devote your attention to these icons.

This icon denotes my favorite mutual funds and exchange-traded funds.

Eminently skippable stuff here, but if you don’t read it, you may not seem as astute at the next cocktail party when fund trivia games begin. Neat but nonessential stuff — read at your leisure.

I’ve told you as much as I can, but you may need or want to check it out more on your own before you make a move.

This icon designates something important that I want you to make sure you don’t forget when you’re making your own...