Mutual funds are an investment vehicle that is made up of a pool of funds. The funds are then invested by professional manager(s) in a variety of companies. The funds can include securities, stocks, bonds, equities and other investments. The benefits of mutual funds for the small investor is a diversified portfolio which would be hard (if not impossible) to create with a small amount of capital. The investor’s money is invested in many different companies which can mitigate investment risks. This allows individuals to avoid putting all of their “eggs in one basket.” Usually people don’t have large sums of money to invest so by pooling money and investing as a team, their buying power is greater than if they invested by themselves.
Each mutual fund has professional managers that manage the pool of the funds. When researching which mutual funds to invest in, it is wise to look at the length of time the managers have been managing the fund. Those that have been doing it for many years, obviously have more experience that is measured by the various performance related graphs.
Asset Allocation
The new investor will have difficulty deciding what funds to invest in unless they have some guidance and understand how to interpret the data provided to them. Everyone has a different goal in mind when investing. Some general guidelines are to make equal investments in each type of funds. There are four types of mutual funds: Large Cap Funds, Mid Cap Funds, Small Cap Funds and International Funds. Equally investing in each type of fund can help to reduce the volatility of the markets.
Researching Mutual Funds
Technology has made finding good funds to invest in much simpler than you might think. All of the fund performance data is collected and shown in a variety of ways.
The performance of the fund over time can be compared with the S&P 500 index. This index began in 1957. The S&P 500 index shows the top 500 large cap stocks. These companies have growth stocks and value stocks. The index is considered a “bellweather” of the United States economy.
The companies in the S&P 500 index are chosen by a committee to represent the industries in the U.S. economy. It has a wide variety of industry sectors included in it. The consumer discretionary sector includes companies like Home Depot, Lowe’s, Best Buy, Macy’s, Kohls, MacDonalds and Starbucks. Consumer Staples include Clorox, Walmart, Coca Cola and Walgreens. The energy sector includes companies like Exxon, Chevron, Hess Corporation and Haliburton Co. The financial sector includes companies like Citi Group, Etrade, Wells Fargo, Morgan Stanley and American Express. Health care, industrials, information technology, materials, telecommunications and utilities are the remaining sectors of companies listed in the S&P 500.
You can see the performance of every mutual fund compared to the performance of the S&P 500. You can also see the growth of a $10,000 investment over a 10 year period of time. This data can help you make guided choices and increase your chances of financial growth.
This information is meant to help you improve your knowledge about investing in mutual funds. There is no guarantee of your success in investing. You need to make sure you research the funds you want to invest in and see if they match your investing strategies and your tolerance of risk.
Purchasing mutual funds can be done online and doesn’t require you writing out checks.
