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Why Mutual Fund Investing is a Good Idea For Retirement

3 Mins read
Mutual Funds investing for Retirement illustration

Investing in mutual funds is not only one of the most popular ways to invest in financial assets such as stocks and bonds, but it is also a highly effective way to save for retirement, especially if you’re looking for a steady source of income that is not tied to an employer. In this article, we’ll talk about why mutual funds investing for retirement is such a smart idea for retirees and how you can get started with it yourself!

Is mutual funds a good investment for retirement?

The answer to this question is unequivocally yes. If you’re planning on retiring in the next decade or so, then investing in mutual funds is a great idea. It’s cheaper to buy into a mutual fund than it is to buy single stocks as they have low fees and costs. Also, they allow you to diversify your investments, so if one stock does poorly, another might pick up the slack.

Mutual funds are low-cost investing vehicles

When you invest in mutual funds, you don’t have to pay middlemen like stockbrokers and financial advisors because the fund manager invests your money for you. This saves a lot of money because there aren’t any commissions incurred by middlemen when investing through stocks and bonds. 

Furthermore, if an investor chooses an actively managed mutual fund over an index fund (an option that automatically invests according to performance), then they will not only save money but also get better returns than those who invest passively through index funds.

Mutual funds diversify your investments, giving you more for less

By purchasing a share of a mutual fund, you’re automatically exposed to hundreds or thousands of different stocks through its investment portfolio without having to pick out individual stocks yourself from various companies on your own (which would cost too much time). This means that one mistake with an individual stock doesn’t hurt as much as it would if you’d bought a thousand shares instead – meaning less risk overall!

Mutual fund investing also give you access to a lot of different investments at once: You can buy into one fund that invests in dozens of companies across many industries or another fund that invests exclusively in tech companies based in Silicon Valley (for example). If there’s an asset class that appeals to you but isn’t available as its own investment option, chances are pretty good that a mutual fund has already incorporated it into its portfolio.

To make things even more convenient for investors, mutual funds come with some additional perks: 

  • They’re tax-efficient because they offset capital gains by selling losing positions; 
Note: Tax-efficiency means that the fund will minimize your taxable income and maximize your after-tax returns. If you're getting taxed at a high rate now and expect that rate to decrease in retirement, this may not be as important to you. However, if your tax bracket will likely increase in retirement, then finding a tax-efficient strategy can help offset some of those increased taxes later on down the line.
  • They’re flexible because investors can buy and sell any time they want; and 
  • They’re liquid—you don’t have to wait until settlement day before getting your money back (or selling any stocks involved).

How much do I need to invest in mutual funds to retire?

For example, if you set aside N100,000 and invest it in a mutual fund that returns an average of 10% each year, N100,000 will grow to approx. N4,525,000 in 40 years. But if you invest N1,000,000 and earn the same return of 10%, after 40 years your savings will be worth approx. N45,259,000. 

As you can see from this example, investing more money with a mutual fund means earning a greater return on your investment—and therefore potentially retiring with more money than someone who invested less. That additional cash can mean all the difference giving you no financial worries at all!

Investing in mutual funds can help you retire with a lot more money than alternative investment strategies.

Learn more about alternative investments.

The appeal of mutual funds is obvious. They are one of the most popular investments in the world and are considered to be one of the safest, thanks to their diversification and low-cost nature. 

If you’re a beginner at investing, mutual funds provide you with a quick way to get started on investing without having to worry about picking individual stocks or bonds yourself. You don’t have to conduct your own research into which companies will make money over time; instead, you can rely on experts who’ve already done that for you (and are paid for it). 

Bottom line

In the end, if you want to make sure that you’re doing everything possible to ensure a comfortable retirement, investing in mutual funds is one of the best ways to do it. Not only are they a low-cost way of diversifying your portfolio and reducing risk while also providing good returns on average, but they also give you access to professional managers who can help plan your entire financial future. If you think about how much time and effort goes into planning out retirement income sources (such as pensions or annuities), why not invest with professionals who have done this before? 

Learn more about retirement planning.

Got any questions? Reach out to us or share with us in the comments.

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