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Investing in a fund may seem tremendously overwhelming at first. Instead of choosing just one company and one stock (one price, one ticker, one exchange, etc.), you're suddenly charged with committing to a whole portfolio, choosing an investment approach, monitoring someone else's record, and getting to know a whole new vocabulary. Before you get mired in those details, you need to decide whether you want some help choosing your funds or whether you'd rather do it on your own. Like most everything in life, both paths have benefits and drawbacks.

Want some help?

Maybe you don't have the time or interest to design your own fund portfolio. Fine! All sorts of financial advisers, from planners to brokers, can help you pull together a financial plan and a basket of funds that can help you achieve your goals.

Of course, this service isn't free. If you work with an adviser, you might pay an up-front fee of some sort, perhaps a percentage of your investment money. Or your adviser may forgo a fee and earn a commission whereby a sales charge is deducted from your investment when you buy or sell shares, depending on the fee structure, and this charge is used to compensate the adviser for selling you the fund. (Note that the load does not go to the fund manager; he or she receives another fee, called the management fee.) Some advisers are fee- and commission-based, which means they'll charge you some combination of the two. This article explains further how advisers charge for their services and how you can go about finding the right adviser for you.

The advantages of working with an adviser are clear: You have someone helping you make financial decisions, taking care of paperwork for you, monitoring fund performance, and forcing you to stick to your investment plan for tomorrow instead of cashing in for an around-the-world jaunt today.

The drawbacks include cost, of course. There's also the challenge of finding an adviser with whom you work well, someone you can trust to put your interests before his or her own, and who will turn your financial dreams into realities, not nightmares. Further, you want to find an adviser who is willing to take the time to teach you about investing and about what he or she is doing with your portfolio. It's your money, after all, and you need to understand why it's invested the way it is.

Go-it-alone, take one

Those with the time and interest to learn about investing and to monitor their own portfolios can invest in funds without the help of an adviser.

Go-it-alone types can buy funds directly from fund groups (also called fund families) such as Fidelity, Vanguard, Schroder, etc. Most fund families provide prospectuses and applications on their web sites.

New investors who plan to buy more than one fund might choose one of the larger families. Why? Because these families are diversified: They offer stock and bond funds, domestic and international funds, and large- and small-company funds. Take it from us: Most fund investors eventually own more than one fund because of the need for diversification; by investing with one of the major fund families, you can more easily transfer assets from one fund to another. This previous investing lesson can help you decide how many funds you ‘need’ in your portfolio.

Investing with a single fund family—even a large one—can be limiting, though. For example, some families don't offer a wide array of funds—you might find they specialize in, say, large-company growth investing but offer very few bond funds of any kind.

Another way to diversify, then, is to invest with several fund families, a series of specialists who do one thing particularly well. You could buy a large-company growth fund from one family, a small-company fund from another, a bond fund from yet another, and select a fourth family to provide your international fund. But that would mean a lot of paperwork; each family would send you separate account and tax statements. If you own more than a few funds, the paperwork can become maddening.

Go-it-alone, take two

Do-it-yourselfers who hate paperwork but want a lot of choices shouldn't despair: No-transaction fee networks, also known as "supermarkets," are a popular solution. If you invest through a fund supermarket, you can choose from thousands of funds offered by dozens of fund families and there's no direct cost to you. So you could buy, say, four fund from four separate fund families and receive all of your information about performance, taxes, etc., on one consolidated statement.

There are a number of fund supermarkets today, and more and more fund families are getting into the act.

What could the drawbacks here possibly be? Surprisingly, one drawback is cost. While it is true that fund supermarkets do not charge you when you invest in a fund through their programmes, they charge the fund companies to be included in their programmes. As any student of economics knows, that fee acts rather like a tax and is passed right along to shareholders—that's right, to you—as part of a fund's expense ratio, i.e. the fee the fund charges you each year for managing your money. The real kicker is that shareholders are paying these fees whether they buy the funds through the fund supermarket or directly from the fund family.

Some observers, including Vanguard founder Jack Bogle, also suggest that fund supermarkets encourage rapid trading among funds. Most supermarkets offer online trading, and with so many funds from so many families investing in so many different things to choose from, the temptation is great. But trading too much can hurt your portfolio's overall performance.

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