Pretty much as the name implies, a Mutual Fund is several like-minded company stocks or securities bundled together and offered through a single fund to investors. One can invest in several stocks without buying them individually. And they have a “ mutual” purpose or goal…something making them acceptable to be bundled into a single Fund. For example, a Banking and Finance fund might include the big banks and Wall Street firms, etc. A different Fund for Energy might include stocks of oil and gas and nuclear power companies. These are often called “sector” funds since they represent stock of companies in similar businesses. Others will be bundled because they are of a certain size i.e. large cap, mid cap, small cap…..or because of their risk, conservative, moderate, aggressive, and there seems to be no end to your choice of funds…. Even funds which mirror the Dow Jones Industrial Average or S&P 500 Index are available, a veritable cornucopia of choice, not to mention, a single stock, like say Walt Disney (DIS), can be found in a Large Cap Fund, an Entertainment Fund, even a fund which mirrors the Dow (since DIS is a Dow component).
If you are adverse to the ups and downs of the Stock Market, a Bond Fund might be better for you. It’s primary goal is income (interest earned); the risk can be low to high, the returns based on the interest paid by borrowers (government, corporate, municipalities), and can be bundled in Short Term, Intermediate, US treasury bond funds, to name a few.
Perhaps the best bet is to “straddle the fence”, a balanced fund; one which mixes stocks and bonds; usually by percentage like 60/40 or 40/60, stocks/bonds. In addition, if you like a particular investment firm (“fund family”), you may choose a “fund of funds” approach. Here you invest in a single mutual fund comprised of several sector funds found within that Fund Family. In this way, you can invest in that companies’ Large cap, Small cap, Short term bond, Utility funds for example, thus spreading the risk around
So…how can you find these funds?? First, choose an investment firm, you’ve heard of them, you’ve seen them on TV and in advertisements all the time. View online what each can offer, costs, and investment requirements etc. I suggest that you choose 1 or 2 Funds from 1 or 2 companies, then chart them for a while. On the internet are many useful “apps” where you can create a watch list & view, on your mobile device, info such as initial investment, 1yr, 3yr, 5yr, returns, Fund type, Fund ticker and more, a great way to follow your “picks” before you take the “plunge”.
In conclusion, a mutual fund offers you, the investor, a wide variety of choice based on your individual investment goals (conservative, moderate aggressive……)
To your Financial Health
Cents Maker