What You Need to Know About Mutual Funds

A mutual fund is a grouping of stocks from a variety of market sectors. For example, you may be invested in the energy sector, the clothing sector and the military sector at the same time. This diversifies your portfolio enough to protect you against any one stock bringing your overall investment down.

What is the Risk of Losing Money in a Mutual Fund?

Mutual funds are considered one of the safest investments that you can make. However, unlike government bonds or CDs, a mutual fund can yield a high enough rate of return to justify keeping your money safe. In most cases, your fund will do better than the market in general.

It is a Good Way to Save for Retirement

A mutual fund is a great way to save for your retirement. In most cases, your employer will give you the option to invest your 401k contributions in a variety of index funds. These funds will keep pace with the market at worst while outpacing the market in some cases. This means that you can look forward to an average yearly return of about 8 percent or more.

You Do Not Need a lot of Money to Get Started

If you have at least $500, you can invest in a mutual fund of your choice without the need for a broker. For those who have at least $100, there may be funds that will allow you to invest in partial shares or invest through a broker. While investing through a broker can cost you up to 2 percent of your earnings each year, it can be worth it to get your foot in the door. Once you have made an initial investment, you can continue to invest in your mutual funds in any manner that you see fit.

Mutual funds are a safe way to invest your money. Instead of worrying about your portfolio tanking during a poor economy, you can rest assured that your money will continue growing each year. If you are nearing retirement, that is the type of conservative investment that you sorely need to ensure that you benefit from your years of hard work.