It’s easy to feel overwhelmed when there are so many investment vehicles available in the market. One of them is mutual funds. And when you hear this words and nothing comes to mind, this would lead as to the question: what are mutual funds?
As this is your mutual fund investing for beginners, we’ll help you set up a foundation you need to know about mutual funds. And hopefully, answer your question.
What are mutual funds?
Mutual funds are probably the easiest and least stressful way to invest in the market. But before you dive into the pool and start investing, you should know exactly what they are and what do they do.
Mutual Fund Investing Basics
Mutual funds are an investment vehicle that consists of a pool of money collected from individual investors, companies, and other organizations. The purpose is to invest the money in securities such as stocks and shares, bonds, and other assets.
In other words, these will allow you to pool your money together with other investors to purchase a collection of securities that might be difficult to create on your own. This often referred to as a portfolio.
Read more about Building the ideal investment portfolio.
Furthermore, a fund manager is hired to invest the cash the investors have contributed. The manager’s goals depend on the type of fund.
For instance, a fixed-income investing fund manager would strive to provide the highest yield with the lowest risk. While a long-term growth investing manager will try to beat the Dow Jones or the S&P500 in a fiscal year.
Learn more about mutual funds in A quick overview of mutual funds.
How to Start Investing in Mutual Funds
A mutual fund is both an investment and an actual company. For example, when you buy a stock, you are buying part ownership of the company and its assets. If you’re a mutual fund investor, however, you are buying part ownership of the mutual fund company and its assets.
Every fund has a certain investing strategy, style, or purpose. Some would invest only in blue-chip companies, while others invest in start-up businesses.
Additionally, finding a mutual fund that absolutely fits your requirements and style is extremely crucial. If you don’t know anything about automobile, you must not invest in an automobile fund. Choose an investment that you know and understand.
Planning to invest? Read more about our Investment Plan: A Simple How To.
How do I invest in mutual funds
You can purchase mutual fund shares if you already have a brokerage account. Otherwise, you can visit a fund’s website or call them to request information and an application. They have a minimum initial investment that can range $25 – $100,000, with most in the $1,000 – $5,000 variations.
Best Starter Mutual Funds
Here is your quick guide of which best mutual funds you can start as a beginner.
- Vanguard Total Stock Market Index Fund
- Vanguard Total Bond Market Index
- S&P 500 Index Funds
- Dodge & Cox Stock Fund
- Rowe Price
The Best Mutual Funds to invest in
- Vanguard 500 Index
- Vanguard Mid-Cap Index
- Fidelity Select Consumer Staples
- Vanguard Health Care
- Vanguard Energy
- Hussman Strategic Total Return
- Loomis Sayles Bond
Lastly, we hope that this article was able to help you answer your question: what are mutual funds?
In summary, be sure not to complicate things about mutual funds. Sometimes, just getting started is simply the best way to learn more about them.
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