HOW TO BUY STOCK FUNDS ONLINE
Not everyone wants to learn how to buy stocks and some would prefer to buy funds instead. A stock fund is a group of stocks (often called a basket of stocks) that is managed by a fund manager. You, and a lot of other people, put money into the fund and the fund manager is in charge of deciding what stocks to buy, when to buy them, and when to sell them. There are now thousands of funds (including bond funds) and you can find one that specializes in any industry, any investing strategy, or any investment goal under the sun.
People most often get introduced to funds through their 401K plans because most plans do not allow you to buy individual stocks. 401K plans usually only give you a handful of options which are a really conservative fund, a conservative fund, a growth fund, and maybe an even more aggressive growth fund, along with some sort of investment vehicle that just earns interest. Sometimes the 401K plan your company has will allow you to buy stock of that company but that would be the only individual stock you are allowed to buy.
Because people become familiar with funds through their 401K plans, many of them never feel comfortable buying individual stocks. They don’t want to learn how to evaluate companies and do all the work needed to make smart stock decisions. They would rather just put their money in a fund and pay the professional fund manager to do it. However, with the rapid proliferation of stock funds in the last 20 years, there are now thousands of them to choose from! So, picking a fund and doing your homework trying to choose the right one(s) is now just as hard as picking individual stocks. For anyone looking into how to buy a stock fund, the sheer number of funds to choose from can be overwhelming.
To put your money in a fund is not free. After all, the fund manager has to make a living and that is why you have to pay a fee. Some funds have front loaded fees (means you pay a fee up front) or back loaded fees (you pay a fee later on to get out) or some other type of fee. But once you pick a fund, it will often be just as easy to buy online as a stock is. Please see the picture below which is from the E*Trade interface where you can see all it takes is a couple clicks of the mouse to buy the fund PTTAX. All you have to do is put in the amount you want to invest, make a couple clicks and you are done. It is very similar to buying a stock.
The only problem with buying stock funds is that not all funds will be available online. If you go and research different funds by reading magazines, stock newsletters, or searching online, you may become interested in a fund that is not available in your online broker account. The bigger the fund is and the older it is, the more likely you will be able to buy into it online right in your account. But the smaller and newer funds are sometimes not available through your online account and in that case you will have to pick up the phone to make a call.
Many people like to have a combination of stocks and funds to make up their stock investing portfolio. The thinking is that they will have part of their money “managed” though a fund by a professional and then the rest will be comprised of their own stock picks. This is a very personal decision and really depends upon how you feel about stocks and your ability to devote time to picking good ones. Stock funds are great for people who just don’t have the time or desire to learn what they need to in order to become an educated stock investor.
