Mutual Funds
Mutual funds are investments that pool together the money of thousands of small investors and invest this money in stocks, bonds and/or other securities. Instead of purchasing a particular stock, you purchase shares in a whole group of stocks.
- They offer small investors access to the advantages of diversification, investing in hundreds or thousands of different companies.
- Individual stocks and bonds are risky; their value is subject to volatile investor perceptions. When you choose single stocks, you are betting on a few individual companies.
- Stock and bond mutual funds are not guaranteed − you can still lose money − but diversification minimizes some of the risk.
The Upside of Mutual Funds
- Because mutual funds are generally diversified, spreading the risk with different companies and different securities, you do not have to monitor specific stocks or other investments.
- Growth is proportionate. That is, as the fund is successful, so is your account.
The Downside of Mutual Funds
- There are hundreds of mutual funds available. You need to select wisely to avoid risking all or part of your investment.
What are Load Funds?
- Mutual funds charge a kind of fee or commission called a “load” – a one-time fee paid when you buy or sell shares in the fund. “No load” funds are your best bet.
What do I Need to Know about Mutual Fund Charges?
- Mutual funds charge fees for ongoing expenses (such as fund management) and these fees will cut into the return you make.
- Despite what anyone might tell you, funds with lower expenses generally perform just as well as funds with higher ones. Stick with low-expense funds.
