A mutual fund is an investment fund consisting of a pool of money from many investors, which is used to invest in a variety of investments. The investments may include stocks, bonds, short-term debts and securities sold on money markets (money market instruments), and other securities.
Investors hold shares in the mutual fund as a whole, not in the individual investments. A fund manager regularly trades the pooled money of a mutual fund.
Video: What is a Mutual Fund?
Fund managers make money for their mutual fund investors by selling investments for a profit, and by earning interest and dividends on the investments. If the investments of a mutual fund make money, then the investors also make money. If the investments in a mutual fund lose money, so do investors. The U.S. Securities and Exchange Commission (SEC) has laws that govern these types of investments.
Should You Invest In a Mutual Fund?
Last year was a fateful year for all investments. Mutual funds were no exception. If you intend on investing in a mutual fund, find one that has a long tenure of proven success. There are many available that have been around for a long time that can show exceptional years of gain, some in the 30% range.
Talk to several financial advisors from different companies. Make appointments to have them present to you different mutual funds and their respective performances. Don’t settle on one until you research the fund yourself online if at all possible. If you are already investing with a securities company, ask your financial advisor about mutual funds and which ones might be right for you. Make sure you ask your advisor about the mutual fund’s fees and expenses. You can save money, though, by going directly to the mutual fund sponsor; otherwise, another financial company will charge you a load fee for your investment in the mutual fund.
Picking Your Own Portfolio
If you are the type to become fairly involved in your investments, there will come a time when you’ll want to begin investing on your own. There are a ton of private investors out there that make more money dictating their own investments than using a mutual fund. Of course, diversity is the key to successful investing. Diversifying your investments should help ensure the least amount of possible loss.
Go online and research different websites for stocks, bonds and other securities. Keep in mind the advice you hear on TV programs and in the business section of newspapers. Read, read, read, and research. Some good resourceful websites to consider are Yahoo! Finance, MSN Money, AOL Money and others. Do a search for financial websites and you’ll find more than enough to satisfy your financial curiosity.
Video: The Stock Picking Strategy That's Making Millions
Note what type of stocks and bonds the industry is talking about. You might even want to put together an Excel spreadsheet that notes the activity of particular stocks mentioned in the current news. Make note of their high/lows for each day, 52-week range and other specifics of the stock. Stay away from stocks that haven’t been trading for, at least, a year. Stay away from companies with less than $110 million capital. These are just a few suggestions.
Most of all, you’ll want to watch the market for several months before you’d ever begin to invest on your own. When you do, start off with a small stock, one you’ve watched for around six months. Make sure it has been gaining for the entire time, but slowly. Invest a small amount and see how that goes. As you gain your confidence in investing, you will be able to invest greater amounts of money in more expensive stocks and bonds, but always remember to diversify. Although you may not be able to defer all loss, diversifying will be your biggest insurance policy against greater losses.
