The Mutual Funds are the smartest way to start in the investing world, and in this article you’re going to learn everything you need to start building your portfolio in no time. But before going to the actual investing, let’s define what a Mutual Fund is and why is it important to understand them in order to take advantage of them. A mutual fund is essentially a savings vehicle, or a type of investment. But that doesn’t say anything, so let’s dig deeper, how do they work? Are they similar to bonds or stock? In lay man terms, a mutual fund is like a bucket full of investments, so, when you decide to put your money in a mutual fund, what you’re actually doing, is investing in dozens, or even hundreds, of stocks, bonds, and other types of securities combined.
As with every other investing choice, there is some risk involved, and that risk is caused by the probability of sudden change of value, or even the loss of the capital you originally invested. The mutual funds usually produce a low but steady return over long periods of time (example: 7-10% over a ten-year period), but they can be very volatile in the short term being able to deliver big loses or huge returns over a year (example 40% loss or 50% gains)
That’s why you have to be reasonable with your expectations about the behavior of the exchange market, and how would you react to the inevitability of the extreme circumstances. Now it’s time to talk about how to start investing in mutual funds, even though people usually says that one shouldn’t put all the eggs in just one basket, usually a rookie investor doesn’t have enough capital to afford to join more than one mutual fund, so it’s very important to make sure you find a fund with the right mix of a diversified portfolio and a rate of risk adapted to your tolerance and your expectations.
But before choosing your first mutual fund, you should want to reflect to decide if you need professional advice, or if you can find the right choice on your own, and that depends on your type of personality and how willing you are to devote part of your time and effort in doing your research in order to find the right fit.
The next step in your investing mission, is to choose the right investment style for you, but considering you decided to go simple and powerful on mutual funds probably you can become a tactical asset allocator, or something that builds on your strengths as a prudent, buy and hold investor. Finally, you need to know that one fund is not going to be enough to create a sustainable profit over time, so as long as you find another affordable opportunity, you should jump on it and make in order to start building your own portfolio The idea behind all this, is to get you to a point in which you will be able to go deeper in the investing world by having a detailed understanding of all the ins and outs the mutual funds world in order to make a more robust, and profitable investment.
Nice Pauline! The explanation of mutual fund is easy to understand. Now, I kinda have the gist of how mutual fund works. Thanks!
Hello,
There are lots of articles on Mutual Funds.
However, they are full of jargon and heavy words.
It makes them difficult to understand.
But when I read your post, it was surprisingly easy and interesting.
You have made a valiant attempt to explain Mutual Funds in an easy way.
Great Post and Thanks for sharing.
Regards.