Payday Loans

Understanding Credit

Personal Finance

Family Finance

  

Investing

U.S. Savings Bonds

A mutual fund is a professionally managed portfolio of stocks, bonds and/or money market investments with a specific goal stated in its propectus. The first mutual funds were founded in the 1920s before the 1929 stock market crash which ushered in the Great Depression. Mutual funds survived the Great Depression. In fact one fund, the Pioneer Fund, anticipated bank failures during the 1930s and issued payments to shareholders via postal money orders rather than checks. In the 1970s the Securities and Exchange Commission deregulated the sales of stocks and bonds. With the removal of these antiquated rules, The stock market flourished. This led to an increase in mutual fund sales as well.

The professional management and diversification of mutual funds are major benefits for investors. Rather than researching several individual stocks and bonds to build their portfolio, investors just need to review the fund's prospectus and performance history. Since mutual funds will accept investments as low as $50.00, investors can start their portfolio much faster then they could using individual stocks and bonds. Most stocks are sold in multiples of 100 shares. Bonds are issued with a face value of $1000.00. Mutual funds are issued in fractional shares to allow shareholders to invest smaller amounts of money on a more consistent basis. This encourages the investment practice of dollar cost averaging. Investors buy a preset dollar amount of shares on a recurring basis. Most people do this on a monthly basis. Many research studies prove that buying mutual funds consistently regardless of price and market conditions provides a better return on a long term basis. Trying to time the market leads to buying when prices are already high. When buyers expectations of even more price increases are not met, too many people will sell at a lower price to minimize their losses.

Mutual fund advantages of professional management, investment diversification and the ability to invest small amounts on a regular basis also appeal to 401k participants. 401k plans are an employer sponsored retirement savings benefit. Investments come directly out of the employees paychecks. Dollar cost averaging without having to arrange the investment is a major attraction for the employees. Since the financial services business was one of the first businesses to utilize online transactions when the world wide web simplified online access, most employers will provide a website for their 401k plans. Employees can choose the percentage of their earning to contribute, how much of the contribution should go to which investments, do research on all available investments, monitor the funds performance and make adjustments as needed.

In summary, mutual funds provide individual investors access to the higher long term returns that stocks and bonds can provide without having to decide the merits of all the available investments. They get a professionally managed and well diversified portfolio suitable to their investment goals without having to save large amounts of money for the initital investment. There are several mutual fund research companies that provide more information on these funds than most people will need, much less want. There are so many mutual funds available that investors can choose from several funds to meet their goals.