Financial Tips: Introduction To Mutual Funds

Investing in a mutual fund will reap more return longterm than most stocks. Information on yielding returns on your investment.

When you invest in a mutual fund you are actually buying shares in the fund itself, which means you own a small part of the entire portfolio of the fund. When the value of the portfolio increases so does the value of your shares. If the value of the portfolio falls in price so does the value of your shares. Most mutual funds are classified in three different ways: stock, bonds and money market funds. A stock fund contains mostly stocks, a bond fund contains mostly bonds, and a money market fund contains mostly money market investments.

Advantages -

A main advantage of investing in mutual funds is the diversification of investments which in turn spreads your overall risk out If one stock goes down another one may go up to help stabilize the value of the fund. Another advantage is the fact that your money is in the hands of investment professionals who seek only to achieve the stated investment goal of the fund. You never have to worry about buying and selling stocks because it is handled for you.

Disadvantages -

You could possibly lose part of or your entire investment because returns are not guaranteed. You have to pay fees and expenses incurred in the handling of your fund.

Mutual funds are generally separated into different risk categories like high risk and low risk. An aggressive investor looking for a faster return would be more likely to invest in a short term high risk fund than the person looking for a long term equity type of investment.

If you are looking for a low risk investment that you don't need to pay much attention to you should head for a growth fund. They gain in value little by little but they have nearly no risk. They tend to invest in blue chip stocks that don't fluctuate in value much.

If you are looking for a fund with a faster paced strategy an aggressive growth fund could be the way to go, they ten to invest in technology and biotech stocks that are more likely to fluctuate in value than the blue chips.

Mutual funds are a great thing for people with little time that want to invest but don't want to spend the time and effort looking up stock quote everyday. Mutual funds can be purchased through traditional brokers, online brokers, banks, investment firms, and sometimes directly from the mutual fund company. Some require a minimum investment while others let you invest as much or as little as you want. Many funds offer direct investments, which can be taken from your checking account automatically each month and invested into the fund.

Mutual funds can be given as gifts for newborn babies, weddings, birthdays or any holiday event. If you want to give a student a fund to save for college expenses they have funds designed specifically for that reason.

If you are interested in purchasing a fund it is important to research a number funds to find the one that is right for you. Fund information is available on the Internet, from dealers, and from the fund companies themselves.

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