A mutual fund is a pool of money collected from investors that is then used by a money manager to invest in stocks, bonds, and other securities.
The purpose of a mutual fund is to give small investors the ability to have their money invested into a portfolio that is actively managed by a professional.
There are different categories of mutual funds which represent the market that they are invested in.
Mutual funds charge fees called expense ratios and that can have an impact on your returns.
The money manager is a person or firm that actively manages the portfolio of a mutual fund. They do this by employing experts to monitor market trends and decide when to buy or sell securities.
It is the money manager’s fiduciary duty to make the best financial decisions went it comes to the investor’s money. In return for a fee of course.
A mutual fund is at once a stock and a company.
Same with a mutual fund, except this company’s business is making investments.
Most mutual funds are a part of a larger financial institution and the biggest institutions among them have hundreds of separate mutual funds.
An example of these companies would be Fidelity, Vanguard, and T. Rowe Price.
If you invest in a mutual fund, you don’t need to be a financial expert, you can trust a professional to competently manage your money for you.
You also don’t need to burden yourself constantly looking at how all your separate investments are doing because the again the professionals are doing it for you.
With a mutual fund you are getting an already diversified portfolio that can withstand most market fluctuations.
The thing that most people consider the biggest downside when it comes to mutual funds (specifically the ones that are actively managed) is that they charge fees which eat into your investment returns, so much that it’s like you didn’t make any gains at all and when your investment doesn’t even make a return that year, the added fee makes any loss much more harsh.
I recommend investing in index funds instead as they are managed, but not to the point where the money manager is trying to time the market.
In the long term (more than 10 years) index funds come out on top over more than 98% of actively managed mutual funds.
Mutual funds are great for investors as they provide returns for non-experts but a lot of those returns are mitigated by management fees, so in order to shrink down management fees, you should invest into index funds which also have always been shown to beat actively managed funds in the long run.