Simple Mutual Funds For Dummies

Mutual funds have been around for over a couple of hundred years, and some say even longer than that. To have survived for so long they must provide an investment that people really like. And as their popularity has grown, so has the number of different funds. So what are mutual funds and why do people like them so much?

What Is a Mutual Fund?

A mutual fund is one big account full of stocks from many different companies. Or it may be a big account full of bonds from many different companies. Or it could be a big account full of stocks and bonds from many different companies. You get the idea. And they all could be from American companies, or they could be from countries all over the world. Like I said up above, as they have gotten more popular, so have the different types and styles.

The Popularity of Mutual Funds

So why do people like them so much? A few years ago one of my favorite stores was Montgomery Wards. Most of the furniture in my house was bought there. Seen any Montgomery Wards around lately? The camcorder I use to film my grandkids with was bought at Circuit City. I got a great deal on it; maybe it was too good a deal. Their stores are long gone.

What do Montgomery Wards and Circuit City have to do with why people like mutual funds so much? Those two companies are just an example of why people do not like the risk of buying stock in a company. You shop at a store and really like that company. So you decide to buy some of their stock and watch it grow. You make the purchase, soon forget about it, and then one day you hear they are closing stores. It is too late by then to sell and hope to breakeven.

While mutual funds certainly have a risk involved with them, it is much less than owning the stock of one company in that fund. The funds are big enough and have spread out their purchases so that one company going under will not sink them. This diversification of the risk is a comfort to most people.

Since mutual funds come in all shapes and sizes there is different risk involved with different funds. Utility companies have been around for quite some time and more than likely will be around for years to come. The government regulates and watches these companies very closely. Dot com companies of the 1990s were new to the scene and most were not very profitable. The risk involved with a utility mutual fund was a lot less than a mutual fund made up of startup internet companies back in the 1990s. You cannot just jump in with both feet and start buying mutual funds without a little research. A little internet surfing will help you check out different funds and the risk associated with each.

Mutual Fund Account Managers

Another reason people flock to mutual funds is the professional management of the funds. Fund managers have the training, experience and the tools to analyze the market on a daily basis and make adjustments to the fund as needed. They want their fund to do well so it will grow and make them more money. This is just another peace of mind for mutual fund buyers.

Easy to Buy Mutual Funds

Most funds will accept a lump sum investment to get started. And then you can make additional lump contributions or you can set up a weekly or monthly contribution. The ease of getting into and out of mutual funds also helps make them very popular.

So you can buy in easy, feel good about the diversification of risk and also know that a professional fund manager is watching over your investment. That is why mutual funds are popular and growing.

By: Ben Read

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