Because it is sometimes hard for investors
to become experts on various businesses-for example, what
are the best steel, automobile, or telephone companies-investors
often depend on professionals who are trained to investigate
companies and recommend companies that are likely to succeed.
Since it takes work to pick the stocks or bonds of the companies
that have the best chances to do well in the future, many
investors choose to invest in mutual funds.
A mutual fund is a pool of money run by
a professional or group of professionals. After investigating
the prospects
of many companies, these professionals pick the stock or
bonds of companies, and put them into a fund. Investors can
buy shares of the fund, and their shares rise or fall in
value as the values of the stocks and bonds in the fund
rise and fall.
Investors may typically pay a fee when they buy or sell
their shares in the fund, and those fees in part pay the
salaries and expenses of the professionals who manage the
fund.
Even small fees can add up, so you need to look carefully
at how much a fund costs and think about how much it will
cost you over the amount of time you plan to own its shares.
If two funds are similar in every way except one charges
a higher fee than the other, you'll make more money by choosing
the fund with the lower cost.
Mutual funds appeal to investors because:
- You can invest with a small amount of money.
- Some mutual funds spread their investments over a large number
of companies so your investment is diversified. You haven't
put all you eggs in one basket. If you have a small amount
of money to invest, investing in mutual funds may be the
only way you can diversify your investments.
- The professionals
who run the fund choose the investments and monitor them
continuously.
Related Link:
Mutual Funds Tutorial
Lois Center-Shabazz is the founder of MsFinancialSavvy.com
and author of the 3-time award-winning personal finance
book, Let's Get Financial Savvy! ISBN #0971979502.
Article
Archive Home
Forums | Chat | eBooks | Join
|
