Mutual Funds Rock!!!

When I first started thinking about investing, I remember being scared and confused. I just couldn’t grasp how people picked individual stocks. To me, it felt like almost gambling. One day, while watching television, I saw a commercial for one of the major mutual fund companies. I didn’t know anything about mutual funds so I started to do some research on them. To my surprise, I had found the way for me to begin investing. Mutual funds would be the way to go.

According to most financial adviser’s, the best way one can invest long term is through the use of funds. The most common funds you here talked about are mutual and index. So what is the difference between them?

Mutual Funds

Mutual funds are the compilation of many different stocks and bonds by a mutual fund company. They can be any combination of the two. The stock/bond mix is developed by a mutual fund manager to meet a specific investment goal. Mutual funds tend to be less risky than individual stocks because they are much more diversified. Unlike individual stocks, mutual funds will not make you rich over night. They are intended to be use as long term investments specially for retirement. U.S. mutual funds are also strictly regulated. They are subject to various requirements that ensure that they are working in the best interests of the shareholders.

When picking a mutual fund, things such as fees, and past performance should be taken into account to assure they highest return on investment as possible.

Index Funds

Index funds are mutual based portfolios that are designed to try and mirror the different markets such as the S&P 500 or the Rusell 2000. Records show that index funds perform better than actively managed funds. They are considered to one of the best ways to invest when it comes to mutual funds. They have low fees, and their return has been stellar since their introduction over 30 years ago. I highly recommend reading about the history and reasoning behind index funds.

Warning

I have given a very simplified version of what mutual and index funds are. One has to remember that when investing, there will always be risk. The goal of mutual funds it’s to help minimize some of the risk and to somewhat simplify the investment process. As always one should research a fund and understand it’s position before investing.

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