Best brokers for mutual funds

Mutual funds are generally regarded as a safer investment method than purchasing individual shares in a company. A mutual fund is a collection of investments that include stocks, bonds and other assets, but it's managed by financial experts who decide when to sell or buy investments to stabilize the fund's performance, create returns for investors and minimize losses.

Individual investors can purchase shares in a mutual fund inside a retirement account or in a traditional investment account through a broker. Here, we've identified some of the best mutual fund brokers for retail investors.

What is a mutual fund?

A mutual fund pools money from a number of investors to purchase securities like short-term debt, stocks and bonds. The combined investments are the fund's portfolio. As an investor, you can purchase shares of a mutual fund, with each share representing your ownership.

There are a few reasons you might want to invest in mutual funds:

Diversification: Investing in a single stock is like putting all your eggs in one basket — a single event that results in stock prices falling could be financially devastating. With a mutual fund, you own shares in a number of different investments. Their cumulative losses and gains produce your profit. If one (or a few) stocks prices fall, your share in the mutual fund may remain stable.

Your risk of losing money is smaller with a mutual fund because it’s a diversified investment vehicle.

Liquidity: When you decide to invest in mutual funds, you can redeem (sell) your stocks at any time. You'll receive the current net asset value (NAV) minus any applicable fees. Other investment types may be illiquid, which means that it's more difficult (or impossible) to get your money out of the investment before its maturity date. Real estate and some debt instruments are examples of illiquid investments.

Affordability: There may be a lower financial barrier to entry with a mutual fund than with individual stocks. For example, if you'd like to invest in Amazon stock, you'll pay more than $3,500 per share at the time of publishing. But if you choose to invest in a mutual fund with Vanguard that has Amazon stock in its portfolio, you could get started with a $1,000 minimum investment.

Professional management: Fund managers select the investments included in a mutual fund's portfolio. They also decide when it's time to sell specific investments and buy others to produce returns for investors.

Compare popular mutual fund brokers

It's crucial to research companies before trusting them with your investment. We've done the work to provide information for some of the most popular mutual fund brokers.

Edward Jones is a full-service financial brokerage that offers services for individuals and businesses. You can get a 529 college savings plan or retirement account through Edward Jones and choose mutual funds as your investments.

Highlight: Edward Jones offers one-on-one financial advice; you'll meet with a financial advisor, discuss your goals and financial situation and receive guidance about where to invest your money.

Vanguard specializes in low-cost investing, so you may find it a good fit if you’re a buy-and-hold investor.

Highlight: The variety of mutual funds on Vanguard’s basic trading platform could benefit beginning investors.

Charles Schwab offers more than 4,000 mutual funds with no transaction fees. Sophisticated tools combined with $0 commissions mean that even active traders can conduct business on the platform without racking up a ton of fees.

Highlight: Schwab specializes in providing educational resources for those new to investing.

Ameriprise Financial is a full-service brokerage offering asset allocation, financial planning and ongoing portfolio management services. Advisors also sell financial products and insurance.

Highlight: Ameriprise Financial offers several investment programs to provide a one-stop-shop experience for investors.

Fidelity Investments has a reputation for providing excellent customer service. More than 3,400 of its 10,000-plus mutual funds have no transaction fees. With Fidelity, you'll get helpful research tools and a highly rated mobile app.

Highlight: Fidelity offers mutual funds from several big-name companies, and opening a brokerage account takes just a few minutes. Buy-and-hold investors may enjoy the no-frills platform.

E*TRADE appeals to seasoned investors as well as newbies with its robust trading platform and a suite of educational and portfolio-building tools.

Highlight: The E*TRADE website and mobile app offer access to real-time market commentary and quotes. Active traders can use the Power E*TRADE platform for help executing complicated investment strategies.

Active traders may find a number of great features with Ally Bank. The brokerage doesn't offer any zero-transaction-fee mutual funds, however.

Highlight: Ally Bank offers competitive pricing, advanced trading tools and no account minimums. It could be a good fit if you want to purchase shares of mutual funds to hold for the long haul. Transaction fees on mutual funds could get in the way of frequent trades, though.

How to invest in mutual funds

Investing in mutual funds is a straightforward process once you've decided which brokerage you prefer. Here's how to get started:

1. Open an account with a mutual fund brokerage. You'll provide your Social Security number, date of birth, full legal name and current address to help the brokerage verify your identity and satisfy federal requirements for opening a new account.
2. Explore your mutual fund options to find one (or a few) that matches your investment goals. Decide whether you want a single "all-in-one" fund or multiple funds. Each broker offers access to different funds, and many have online tools to help you narrow your options. Familiarize yourself with the available funds and make sure you’re comfortable with the minimum investment requirements and fees.
3. Choose your mutual fund. Read the fine print before making a final decision to invest in a mutual fund. Check to see if it's a no-load fund and verify that the fund matches your risk tolerance. Look at the fund's past performance as well as its goals.
4. Transfer funds from another account to purchase shares in the fund(s) you've chosen. Depending on your bank and the mutual fund broker, it may take a few days to complete a funds transfer.

Types of mutual funds

There are four main types of mutual funds. Each type spreads risk across several investments while simultaneously capturing gains from those investments.

There are other types of lesser-known funds, including hedge funds, real estate investment trusts (REITs), socially responsible funds, managed futures and commodities. These specialty or alternative funds fall into a catch-all category.

Pros and cons of mutual funds

There are both advantages and disadvantages to investing in mutual funds. Before choosing this type of investment vehicle, make sure you understand the different pros and cons and consider your budget and financial goals.

Bottom line: Should I invest in mutual funds?

Maybe. Building a portfolio of individual stocks is a time-consuming and risky activity that may not produce the desired result for a casual investor. If you have specialized knowledge of a certain sector and are an experienced investor, you may be able to create a portfolio that outperforms the market and many mutual funds.

For most people, investing in mutual funds is a smart way to gain money while relying on fund managers to decide when to buy and sell investments within the fund. Before you invest in a fund, research historical returns, but keep in mind that past returns are not a guarantee of future performance.

Ideally, you'll choose several mutual funds to spread out the risks involved with investing. Start slow, and make sure you understand any fees associated with investing before you buy shares of a mutual fund.