A quick lesson on mutual funds
There are many ways to save money for retirement, the major problem you might discover is how to invest your hard earned money. The first step in choosing where to stash your dough is to learn everything you can about as many different options that are available. A great type of investments for retirement is a mutual fund.
Before I explain mutual funds in detail there are a few other terms I need to familiarize you with so you can better understand mutual funds. Mutual funds are mostly comprised of stocks and bonds. Stocks are a common term when talking about investing. Stocks are basically shares or portions of a company that represent a percentage of ownership in a publicly traded company. The value of stocks increase and decrease according to many factors within the company and within the economy. Stocks are the most common ownership investment traded in the market.
Bonds are also a common term when talking about investing. Bonds carry less risk as opposed to stocks but generally bring less of a financial reward. When you invest in a bond you are basically lending the government your money for a certain amount of time and they are paying you back interest as a reward.
A mutual fund is a financial intermediary that lets investors pool their money together in order to invest in an array of financial securities (mainly stocks and bonds). When you place your money into the pool you are basically buying shares of the mutual fund. A mutual fund has a fund manager that is in charge of making the final decisions for the fund. A mutual fund will always have an overall objective that you should understand before you invest. It will also list the types of companies and securities where your money will be invested. It is always very important to completely understand where your money is being invested.
Mutual funds are probably one of the most cost effective and over time the most rewarding type of investment. Because large amounts of money is being pooled together it allows fund managers to make stock transactions smaller fees. It also allows you to diversify your investments with little research and maintenance. Diversification of investments is very important when investing large amounts of money. Many people learn this the hard way when all of their retirement is dependent on a single company or stock. If the companyÂ filesÂ bankruptsy or that single stock makes a nose dive in value your hard earned money will be lost.
Many good mutual funds over time will average an annual rate of return of 10% or more. I know of some who over a 10 year period have averaged almost 20%. The key to successful investing in mutual funds is like any other long term plan.Â Be patient and start saving early, you will be well rewarded when it’s time to retire.