A mutual fund is a large pool of money that investors create which is used to buy many different stocks, rather than just buying an individual stock. Because all these investors have combined their money, they can afford to buy many different stocks. A mutual fund is managed by a portfolio manager. He or she controls all of the investors’ money and invest it into a group of stocks or bonds and decides how much to invest in each stock. A mutual fund has a price, like a stock (Net Asset Value). It tells you how much one share of that mutual fund costs. When you buy stock, you have to pay a commission. However, the fees involved with investing in a mutual fund are often much less in comparison. There are currently over 6,000 mutual funds available to investors and each one has its own unique style of investing. Here are some of the funds that you may want to consider:
Balanced Fund: These funds are probably best for conservative investors (those who try to minimize their risk). These funds often invest in many different stocks and bonds. Some balanced funds invest in over 200 stocks. By doing this, they minimize your risk while also providing fairly stable growth.
Dividend Growth: These mutual funds use a special kind of investing strategy. They look for stocks that pay dividends and determine the health of the company by seeing how fast the dividend payments are growing. When a company is doing well, it often raises its dividends. The fund managers look at these as the key factor in deciding which stocks to buy. Companies that pay dividends are often large, well-established companies. Therefore, dividend growth funds are fairly safe investments but they also provide quite a bit of growth.
Capitalization Funds: These funds invest in companies whose market capitalization (the total value of all of their stock) falls into their area. Small-cap stocks are those that have market caps of less than $1 billion. Mid-cap stocks are those with market caps in the range of $1-5 billion. Large-cap stocks are those with market capitalizations of at least $5 billion.
Index funds: are seen as the best type of mutual funds to invest in because they outperform 85% of all mutual funds. These funds invest in stocks that make up stock indexes such as the S&P 500. These funds also have fewer fees because they buy and sell stocks less often. Also, because they sell stocks less often, the capital gains are usually seen as long-term so you will pay less when tax season comes around.
Mutual funds are great for people who don’t want to take as much risk with their money. Mutual funds are less risky because they buy a bunch of stocks. If one stock does poorly, you won’t lose as much money as you would if that was the only stock you owned. Mutual funds are also good for people who don’t want to spend too much time investing Many people who want to invest are somewhat afraid to actually do it. Investing is an important step to becoming rich in the long-term so mutual funds offer a safer way to reach your goals. I think everyone should invest in mutual funds instead of buying stocks because stocks aren’t always as safe as mutual funds and I think everyone should invest as early as possible.