Mutual Funds for Beginners
The world of stocks and bonds can be intimidating and cause many people
to avoid it at all costs. There is an easier way of investing that has
fewer risks than conventional trading. Mutual funds allow you to invest
in the stock market without having to be an expert.
When it comes to beginners, they may think of the stock market as picking a company and then buying some of their stock watching it radically fluctuate while they second-guess themselves. By investing your money into a single stock you are taking about a fifty-fifty chance of either losing or making money. Mutual funds have less risk because you have your money spread out or diversified among a group of specific companies.
With mutual funds, an investor is putting their money/faith into a company that invests that money into a number of different companies in which they believe are good investments. The mutual funds have experts on staff that stay current on all pertinent information and trends and then trades based upon that knowledge.
A mutual fund has the option of investing your money in different ways. They may choose to only invest in bonds while some may choose stocks. Others may invest in both. The good thing is that there are thousands of mutual funds to choose from so you are bound to find one that you are comfortable with.
The fee you pay the mutual fund is called a load. Front-end loads are charged when you deposit money, while back-end loads are extracted when you withdraw your money. A load is generally around 3% and is used to pay for brokers who manage the accounts. There are also no-load mutual funds that charge different fees based on account management. Whether you choose a front or back-end load or a no-load fund, it is based on your own specific situation and can be something you look for when choosing the right mutual fund.
One important thing with investing is patience. You have to commit this money over the long term. There is no way to make a quick buck. Only when you have the money to invest is it a good idea. If you are struggling with making payments or are behind on credit payments you may want to wait until you have the necessary means to invest with.
You also do not want to panic when one of your investments is having a down period. It may be hard to trust someone else with your money, especially when the chosen market is suffering, but it is important that you have confidence in what they are doing.
Like all investing there are some risks. The mutual fund company that you have entrusted may be investing in higher risk companies than you agreed upon.
It is harder to follow the status on your own because there can be a large number of companies that your mutual fund is investing in.
You will have minimal control over your investment options. The professionals will be the ones choosing on your behalf.
You may also find that the amount of money that you are paying the mutual fund money is too high compared to the return you are getting from the investments.
Like most everything you want to shop around to find the company that offers the best deals with minimal fees.
This article is just an introduction to the possibilities of investing. It is important that you do more research and ask as many questions as possible so you fully understand how your money is going to be used. Below are a few more resources for you to explore.
Neatest Little Guide to Mutual Fund Investing, Jason Kelly
An easy to read guide to get you started.
David Scott’s Guide to Investing in Mutual Funds, David Scott
Vanguard - www.vanguard.com
Fidelity Investments - www.fidelity.com
Franklin Templeton - www.franklintempleton.com
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