Mutual Fund Moolah
Mutual fund investing is perfect for the investor who has neither the time nor the desire to research individual companies, wants diversification, and doesn't have a lot of money.
What is a mutual fund? A mutual fund is a group of people (investors) pooling their money to invest in a group of stocks, bonds, and other securities (another word for stocks and bonds).
A mutual fund is controlled by a person known as a fund manager. The fund manager, through her knowledge and experience, selects a number of different securities for the fund. Mutual funds are available through brokerage houses and investment companies.
Mutual funds come in the following varieties:
Stock funds own stock in companies. Like stocks, mutual funds can be defined as growth or income investments.
Bond funds own a number of different bonds or specialize in one type of bond.
Money market funds own short-term investments such as CDs.
Balanced funds own both stocks and bonds.
A real estate investment trust (REIT) buys real estate (buildings and land).
Other funds invest in gold or foreign stocks and bonds.
Diversification and professional management are the main advantages to mutual funds. For instance, a stock fund will invest in the stocks of a variety of different industries. Over a period of time, some stock may go down, others may go up. Hopefully, the fund has more ups so that the total value of your investment grows over time! Some mutual funds allow you to invest with smaller amounts of money than would be required by a brokerage house (company that trades stocks and bonds) for investing in stocks. There are even some plans where you can invest a fixed amount each month.
The disadvantage to mutual funds is that the return on your investment may not be as high as the return on the stock market. Remember the 9.5 percent average yearly return on stocks? Typically, a mutual fund does not earn as much, with average yearly earnings of about 8%.
MILLIONAIRE's BIRTHDAY
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How to Understand Mutual Funds
Funds offer an investor a prospectus. A prospectus is a written statement of the fund's objectives — what it hopes to do. It also tells you the fund's performance history, its fees, its special features, the minimum required to invest in the fund, and the level of risk. For example, growth stock mutual funds are riskier than income stock funds. Before investing in any mutual fund, you should read the prospectus carefully. You can also do a little research by looking at the Morningstar Mutual Funds, a weekly rating of mutual funds, or visiting
Like the stock market, mutual funds are listed online. Just like stocks, listings vary from website to website, but here is what you will usually find:
Net asset value. This is the dollar value of one share of the fund. If you were to sell the share back to the company, this is the price you would get.
Trade time. This was when the most recent trade was made.
Change. This shows both the amount and the percent of change.
Previous close. This was the price of the mutual fund at the close of the previous business day.
YTD return. This is the percentage change for the year from January 1 through today.
Net assets. This is the total amount of money the mutual fund is worth.
Yield. This is the dividend divided by the price per share, and it shows what percentage of your investment you will receive in dividends.
This is only a beginning look at the investment opportunities kids can look forward to. If you are interested in finding out more, you're in luck. There are hundreds of books about investing! Just go to your local library or bookstore and prepare to be overwhelmed by the amount of information.
Fun Facts
Buy a Share
You can buy one share of stock of a company you like, such as Disney or Starbucks, at
Bulls and Bears
You may have heard the stock market referred to as a bull or bear market. No, there aren't animals on Wall Street! A bull market occurs when stock prices rise. A bear market is when stock prices go down.
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