Are Mutual Funds For You?

When you put money into a mutual fund instead of buying shares of individual stocks, you are essentially hiring a trained professional to pick your stocks for you. In good, active funds, the fund manager is trained to locate the best-performing stocks of the kind that you want to invest in. There are a lot of mutual fund families around these days as many as 12,000, by some estimates. There are mutual funds for people interested in investing in small companies, large companies, and sectors of the economy such as technology or health services, specific foreign regions or countries, environmentally sensitive companies, and the broadest array of companies under the umbrella of one big diversified fund. There are also mutual funds that charge you too much in sales charges and annual fees don’t perform as well as they should, and generally slow you down on the road to financial freedom. This chapter will show you how to stay away from those. It’s impossible to cover every type of mutual fund available. But it’s not hard to grasp the fundamentals of mutual funds, their basic terms and operating principles. The most important things to look for are good management, a long history of good performance, and very low fees and charges. And once you understand the general idea, you open your investment options wide.

Each mutual fund is run by a portfolio manager, or a team of managers who chooses the stocks in the fund and makes other investment decisions. The fund manager decides which stocks to buy and when to buy them. He also decides if and when those stocks should be sold. The fund manager assembles a portfolio of stocks that he or she thinks will outperform the market—that is, will generate more growth or income than other, similar groups of stocks—with an eye toward giving investors the best return on their investment. A fund manager can make or break a fund, since he or she makes all the critical investment decisions regarding it. When you invest in mutual funds you buy actual shares in that particular fund. A share represents a unit of ownership in the mutual fund, just as a share of stock in a publicly traded company represents partial ownership of that company. The share price of a mutual fund is sometimes referred to as net asset value. Mutual funds allow you to diversify your investments quickly and with minimal risk. Let’s say you have $1,000 to invest. When you put it in a mutual fund, you are buying a small slice of a very big pie that can contain hundreds of different stocks. Let’s imagine that one company whose stocks are held within the mutual fund goes belly-up. As a result, the price of your mutual fund shares may temporarily drop in value slightly, but this wouldn’t be a financial crisis for the mutual fund or for you. If, on the other hand, you had invested $1,000 in shares of that individual stock, you would lose all your money. Spreading your money out among a variety of investments is the key to being a smart investor. With small amounts of money, a mutual fund is a great way to achieve diversification.

Banking Bankers bottom line is mutual funds will help you diversify, and diversifying is smart investing.

Are Mutual Funds For You?

Find the mutual fund family thats right for you.

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