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There have been countless creations and inventions over the past century that have changed the course of man: the television, the personal computer, the hot comb, but none so great as the creation of the mutual fund. Ok, maybe that’s not 100% true, but to an investment square like myself, its right up there.
Mutual funds give average Joe investors like us, the opportunity to gain ownership in publicly traded companies. In a mutual fund you own partial shares of the thousands of American and foreign companies that are doing business every day. This significantly decreases the risk of buying one stock or one bond because you are not putting all of your eggs into one basket. A mutual fund pools the money of yourself and many other investors. This gives you the opportunity to hold many different companies without having Warren Buffet money. There are three categories that the majority of mutual funds fall in:Stock Funds – Stock Funds can provide an element of growth to your Portfolio, being invested in a stock fund will let you participate in the growth of individual companies and the economy in general. Stock Funds can be categorized by market capitilization, investment style, or sector. You can also invest in stock funds, called International Stock Funds that have companies that are based in other countries.Bond Funds – Bond Funds can provide income and stability for your Portfolio. Bonds are essentially loans from you to the issuers of the bonds, such as governments or corporations. Since it is a loan the issuer agrees to pay you back with interest over a certain period of time. The share price of bonds generally fluctuate less than stocks so they add a measure of stability to your Portfolio.Money Market Funds – Money Market Funds seek capital preservation which really means their goal is to NOT lose your money. Money Market funds are known to be liquid investments, this means they provide relatively easy access to your money. Money markets can provide higher rates of return than a bank Certificates of Deposit but are not guaranteed.
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