Beginning Investor Terms – Mutual Fund
Posted on | December 16, 2009 | No Comments
I am not sure this term needs defining anymore. Most persons have experience with mutual funds before they invested in individual stocks. Mutual funds pool together the capital of a large number of people, focusing on a specific investment strategy. This strategy is expressed in the prospectus that potential investors can read to help them decide which type of fund to invest in. Funds can invest in stocks, bonds or a combination of the two. Mutual funds are run by money managers who make investment decisions that hopefully beat the over all market (they definitely did not last year) and produce a return on the investment for their clients. The advantage of a mutual fund is that persons with small amounts of capital can develop a diversified portfolio by investing small amounts in different funds. Mutual Funds are set up for people who don’t really want to get involved in their investments and who want to hope everything goes well.
Here is what I don’t like about Mutual Funds. Well, almost everything. Many trade too much and thus incur excessive fees reducing the investors return. It is tough for big money managers to beat the market because they have so much capital to employ, that is limits their options, compared to the individual small time investor. If you are like me, you would need to investigate someone else’s investment choices and make sure they are sound. If you are going to do all the work anyway, why hire someone else to trade for you.
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