What is a mutual fund?
Adapted from The Right Way to Invest in Mutual Funds (Warner Books, 1996) and Investing for the Financially Challenged (Warner Books, 1999), both by MONEY Magazine senior editor Walter Updegrave. A mutual fund pools money together from thousands of small investors and then its manager buys stocks, bonds or other securities with it. When you contribute money to a fund, you get a stake in all its investments. That’s a big deal: Since most funds allow you to begin investing with as little as a couple thousand dollars, you can attain a diversified portfolio for much less than you could buying individual stocks and bonds. Plus, you don’t have to worry about keeping track of dozens of holdings – that’s the fund manager’s job. The price for a share of a open-end fund is determined by the net asset value, or NAV, which is the total value of the securities the fund owns divided by the number of shares outstanding. If a mutual fund has a portfolio of stocks and bonds worth $10 million and there
• Tips • Before buying into a mutual fund, check with a retirement adviser to confirm that the fund is a proper investment for your portfolio. • Look at the “shareholder fees” section of your mutual fund’s prospectus to find out what fees you’ll pay. • You might find mutual funds in a 401(k) plan, but you don’t have to be in a 401(k) to invest in mutual funds.
Related Questions
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