Guide to mutual funds
The key to successful investing is diversification, which involves spreading money across a variety of investments to minimize risk. But it takes large amounts of money to do that. What’s a small investor to do?
Buy into a mutual fund. Mutual funds allow small investors to pool their money together into the large amount needed to achieve diversification. Think of them as “financial steroids” that let small investors diversify like big investors. Decisions about how to invest the pooled money are made by the mutual fund’s manager.
Market Timing System
Some mutual funds attempt to make money by market timing. They try to figure out when the overall market will be up and when it will be down, and invest accordingly. This involves taking a broad view of things, worrying less about individual investments and more about the market as a whole, figuring that a rising tide will lift all boats.
New York Hedge Funds
New York is a hotbed for hedge funds, which work like mutual funds but are generally managed more aggressively in an attempt to earn a high rate of return. Many use complex investment strategies and limit the amount of investors they allow into the fund by requiring a high minimum investment.
Investing For Dummy
Mutual funds are great for the investor who doesn’t have time to become a financial expert. All the investor has to do is choose which fund to place their money in, and then sit back and let the fund manager handle the details.
Shares
When you invest in a mutual fund, you buy “shares” in it. This is like buying shares of stock in a company, but instead of owning part of a company, you own part of a mutual fund. If the fund’s investments do well, the value of the shares will increase.
Dividend
When a mutual fund is doing well, it may declare a dividend. A dividend is a payment given out to the fund’s shareholders. Shareholders can generally choose to receive the dividend amount or have it reinvested in additional shares of the mutual fund.
Blue Chip Stocks
Many mutual funds like to invest in blue chip stocks. These are stocks in companies that are considered financially strong and stable. Only firms with an established history of good performance are considered blue chips. Since the companies have done well in the past, it is hoped that they will continue to do well in the future.
Unclaimed Funds
To invest in mutual funds, or anything else for that matter, you need money. Many people have money owed to them that they are not aware of. These are called unclaimed funds. A few of the sources of such funds are:
Unpaid dividends on stocks or mutual funds
Old, forgotten checking or savings accounts
Unpaid utility deposits
Your state government may have a division whose job it is to reunite unclaimed funds with their rightful owner. Often they will have a website where you can search on your name to see if you are owed any unclaimed funds.
Lost Money
Lost money is another term for unclaimed funds. In addition to state government, there are private organizations which will help you find lost money that you may be owed. They may charge a fee for this service.
Mutual Fund Analysis
There are thousands of mutual funds out there. It takes careful analysis to determine which one is right for you. The key thing to look at before deciding to invest in a mutual fund is its prospectus. The prospectus will explain the fund’s strategy, what types of investments it invests in, the fees that it charges, etc.
Money Market
Many mutual funds invest in the money market. Money placed in the money market is used to provide short-term (thirteen months or less) loans to businesses, governments or financial institutions. The interest paid on the loans becomes the return earned by the fund’s shareholders.
Armed with a basic knowledge of mutual funds, even a small investor can enjoy the benefits of diversification. Start learning about the individual funds that are out there to decide if one is right for you.