Published On: Sun, Jan 19th, 2020

Becoming a Competent Mutual Fund Investor

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Simply put, a mutual fund is nothing more than an investment product where a pool of money from many investors is invested in securities like stocks, bonds and similar securities. The funds are operated by fund managers that make the decisions on how and where to invest the money in an attempt to produce capital gains and income for the fund’s investors. Each investor in a fund participates proportionally in the gains or losses generated by the fund.

Mutual funds are actually a near perfect investment vehicle for the beginner seeking access to stock and bond markets. They offer an opportunity to participate in professionally-managed, diversified portfolios of stocks, bonds and other securities on a scale that would be impossible to achieve with only a small amount of investment capital. Mutual fund shares, representing an investor’s proportional share in the fund’s assets, can be purchased or redeemed any market day at the fund’s current net asset value per share.

Becoming a Learned Mutual Fund Investor

Since the advent of the 401k, more and more average investors are participating in the financial markets than ever before. Overcoming the challenge of learning to choose investments for their employer sponsored retirement accounts cause some to develop an interest in taking the next step, direct investing within a taxable account or individual retirement account. Here too, mutual funds can be a good fit.

The first task for the new mutual fund investor is grasping the basics of mutual fund investing through research and self-study. Once mired and shrouded in financial market jargon and double-speak, financial information was all but unintelligible to the average person. But today things have changed. Solid, useful and valuable information on investment markets and products is now readily available both online and in print that most any interested person can readily understand.

Web sites like Yahoo Finance, CNN Money and Kiplinger’s have hundreds of articles aimed at helping new investors learn the basics such as the differences between managed funds, index funds, equity funds, bond funds, money market funds, balanced funds and the like. Likewise there are a number of quality consumer level monthly personal financial magazines that perform a similar function. All one must do is devote the time necessary to read and digest what is available.

Grasping the Basics of Mutual Funds Investments

Becoming a Competent Mutual Fund Investor

Before ever purchasing the first mutual fund share, it is necessary to grasp the basics:

Types of mutual funds available (stock funds, bond funds, international funds, etc.)
Differences between similar types (like small cap, mid-cap and large cap stock funds)
Investment risks unique to particular fund types
Potential rewards (capital gains, dividend income or a mixture of both)
Different investment objectives of particular fund types

It seems like a formidable amount of information to learn but spending a little time in research and study on a consistent basis will yield positive results in a relatively short period of time. The importance of comprehending the basics is that it later allows the new investor to develop a personal investment strategy and conceptualize an investment allocation model.

Will she become a value oriented investor or be more growth oriented? Will he primarily seek capital gains or income? How much risk can be tolerated? The answers to these and similar important questions lie in gaining understanding of the basics. Asset allocation is merely what percentage of a total portfolio will be devoted to equity (or stock) mutual funds, bond funds and cash (money market funds).

The Importance of the Prospectus to Mutual Funds Investing

Once a decision has been made about the types of funds desired and a list of potential mutual fund families one is interested in investing with, the last step is carefully reading the prospectus for every fund considered for investment. A prospectus is an informational document required by the Securities Act of 1933 for all securities offered for sale. A prospectus must by law provide the following important information and disclosures:

Fund investment objectives
Fees and expenses
Fund investment strategy
Principal risks
Historical performance
Information on how to buy or sell shares
Investment minimums
Fund management
Portfolio holdings disclosures

Understanding the information presented in a fund prospectus allows for the making of sound decisions with respect to whether a particular fund meets an investors personal investment objectives.

Learning and understanding the basics of mutual fund investing in general and careful study of pertinent prospectuses before investing money can help an investor make informed investment decisions that offer the best chances for success and profit.

About the Author

- I am an internet marketing expert with an experience of 8 years.My hobbies are SEO,Content services and reading ebooks.I am founder of SRJ News andTech Preview.

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