What is a Mutual Fund?

You have likely heard of mutual funds before and if you have an employer sponsored retirement plan (like a 401k), it is most likely invested in mutual funds. 

A mutual fund is a type of asset that invests in stocks, bonds, and other investments.  The great thing about mutual funds is that everyday investors can access them.  They’re managed by professionals and you can pick just about any category you want.  You can search for mutual funds that fit your investment objectives, amounts of return you’re seeking, bonds, stocks, commodities, the world is your oyster!

Let’s talk about investment objectives for a second.  Say you want to grow your portfolio – you would look into a “growth” oriented mutual fund.  This fund would strive to outperform the benchmark it’s tracking and provide you with growth in your portfolio over time.  Instead, if you’re looking for a portfolio that’s going to stay super safe and not move at all, you could look for a mutual fund providing an investment objective similar to “capital preservation.”  As we discussed in the Money Monday episode about Risk vs. Reward, you are going to be assuming some risk for the growth you’re looking to achieve.  All shareholders in the mutual fund are going to participate in the ups and downs experienced by the investment.

When you invest in a mutual fund, the managers of that fund do all the research and picking for you so that you’re not stuck choosing individual investments for your portfolio.  The mutual fund will take a small fee to take care of all of this for you.

In addition, mutual funds can be a great way to diversify your portfolio.  Remember, a diversified portfolio is going to have less overall risk than a portfolio where you have all of your eggs in one basket.

If you’d like to discuss investing in mutual funds, please complete the contact form at the bottom of my page.

Investing in mutual funds involves risk, including possible loss of principal.  Fund value will fluctuate with market conditions and it may not achieve its investment objective.  There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.