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Ok, so maybe you want to buy stock but you don't
know what one. Or maybe you are afraid to put your money into a stock because you
might lose it. Instead of giving up on investing (big mistake), you might want to
look into mutual funds.
A mutual fund is a large pool of money that investors create which is used to buy many
different stocks. Rather than just buying an individual stock, investors pool their
money by giving it to a mutual fund. Because all these investors have combined their
money, they can afford to buy many different stocks.
A mutual fund is managed by a portfolio manager. This person's job is to control all
of the investors' money and invest it into a group of stocks or bonds. He or she
also decides how much to invest in each stock.
A mutual fund has a price, like a stock. This price is called a Net Asset Value, or
NAV. It tells you how much one share of that mutual fund costs.
What Makes Mutual Funds So Great?
Mutual funds are great for people who don't want to take as much risk with their
money. Mutual funds are less risky because they buy a bunch of stocks. If one
stock does poorly, you won't lose as much money as you would if that was the only stock
you owned.
Mutual funds are also good for people who don't want to spend too much time
investing. Portfolio managers handle their money and invest it for them.
When you buy stock, you have to pay a commission. However, the fees involved with
investing in a mutual fund are often much less in comparison.
Many people who want to invest are somewhat afraid to actually do it. Investing is
an important step to becoming rich in the long-term so mutual funds offer a safer way to
reach your goals.
Next: Saving the
Right Way
Chris
publishes a monthly newsletter called Young Investor Monthly that helps teach and
encourage young adults to start investing. Visit the site at www.youngmonthly.com
and sign up for a free copy. |
