A mutual fund is a pooled investment. When you buy shares in a mutual fund, you are buying shares in a professionally managed portfolio of stocks, bonds, or other securities.
Picture a collection of stocks, bonds, or other securities that are purchased by a group of investors and then managed by an investment company. That’s a mutual fund. When you buy a share in a fund, you’re really buying a piece of a large, diverse portfolio. Conversely, stocks are shares of a single company. When it comes to managing an investment, some investors prefer leaving those details and skills to someone else.
You should remember that past performance is no guarantee of future results. The value of your shares will fluctuate with the changes in market conditions, and when sold may be worth more or less than the original investment amount.
Mutual funds make managing your portfolio very easy. Periodic statements will fill you in on the performance of your mutual fund, transactions within your account, and more. You’ll also be kept informed about the taxability of your distributions.
There are thousands of different mutual funds offered on the market. They range from funds that include a broad variety of investments to funds that invest exclusively in single securities or narrow sectors of the market. With the many different investment styles and objectives, there’s bound to be a number of mutual funds that are suited to your investing profile. Each of these funds has expense, risk, and return characteristics. Be sure you understand these characteristics before you invest.
Growth funds seek long-term appreciation by investing in the stocks of established companies that may be poised for growth. These companies typically pay low dividends yet offer the potential for long-term capital appreciation. Some growth funds limit their investments to specific sectors of the economy. Growth funds are generally less risky than aggressive growth funds.
Transacting business with stocks can be a more complicated experience. Placing buy orders, selling shares, or dictating any number of orders can be time-consuming. To some, however, that’s just part of the experience. In summary, fund investors are often attracted by the overall convenience. By way of contrast, stock investors may tend to be more comfortable with their own investing skills.
Sector funds invest in specific industries or sectors of the economy, such as communications, aerospace and defense, or health care. While they may be diversified within a particular sector, they lack broad diversification. This increases their investment risk. These funds typically seek long-term capital appreciation.
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