Countless people are beginning to realize the need for investments. Perhaps you are one of the thousands of people who want to build wealth in order for your loved ones to enjoy a better life. This realization is a good thing. The problem? Most of the people who desire to begin investing and building wealth have neither the time nor the knowledge to invest on their own. Investing in a mutual fund can solve this problem.
What Is a Mutual Fund
Simply put, a mutual fund is a financial organization that is usually incorporated and invests the pooled money from its shareholders in various securities.
The Benefits of Mutual Funds
There are many benefits to becoming a shareholder in a mutual fund. A few include:
- A diversified portfolio. Mutual funds invest in many different types of financial instruments, resulting in a lower risk for the shareholder.
- A professional investment manager. Mutual funds hire professionals to manage the fund’s investments. These professionals carefully research and plan the fund’s investments.
- Convenience and liquidity. Mutual funds are convenient because all the work is done for you. In addition, most mutual funds allow you to sell your shares at any point, giving you liquidity.
Choosing the Right Mutual Fund
The right mutual fund for you will largely depend on your investing preferences and risk tolerance. Every fund has an objective. Simply choose a fund whose objective coincides with your investment tastes. For example, you can choose a fund that invests solely in the stock of U.S. companies. You may choose a fund that invests in a mixture of stocks, bonds, and other securities.
In addition to choosing a fund that suits your preferences, it is important to be aware of the fees and loads charged by a mutual fund. Most mutual funds charge a manager fee in order for a professional manager to monitor the investments. However, some funds also include what are known as 12(b)-1 fees. These fees are charged annually to cover marketing and distribution costs and can be as much as 1% of the fund’s assets. Loads are basically sales commissions given to the salesperson when you invest in the fund. The load can be charged at the time of the sale (front-end load) or when you sell your shares (back-end load). In order to make the most out of your investment, find mutual funds that have little or no fees and loads. No-load, no 12(b)-1 fee mutual funds do exist, and they perform just as well as funds that charge the higher fees.
Build Wealth with a No-Load Mutual Fund
By carefully choosing the right no-load mutual fund, you can successfully begin building you investment into wealth. Given that two mutual funds perform the same, a no-load fund will always give you a higher return on your investment. For example, if you invest $15,000 in a 3% front-end load mutual fund that returns 7%, at the end of the year your investment will have grown to $15,568.50. In comparison, that same $15,000 investment made in a no-load fund (with the same 7% return) will have grown to $16,050.00! You can clearly see why choosing a no-load, no 12(b)-1 mutual fund is the wiser choice.
Mutual funds can be a great way to begin to turn your investment into real wealth. As always, evaluate your financial situation, research, and determine what your next step should be toward increasing your assets.
Smart Investing Tips
An investor’s financial future depends on smart investing. With a well thought-out personal investment strategy, founded upon solid research and a little help from a personal finance planner, the likelihood that investments will bring back expected returns will rise. Do some background research, consult with a financial adviser, and make a point to diversify investments.
Research Investments and Options for Smart Investing
The first step for smart investing is to ask questions. Figure out foundational expectations before going in to develop an investment strategy with a personal adviser. What types of investments make the most sense, and what are the expenses and risks involved with those investments? Is social responsibility an issue when putting money into mutual funds? What are financial goals five years, ten years, and thirty years in the future? How important are savings and investments and how much money can be set aside to meet these goals?
Once the questions are developed, research investments and different options, investigate types of life insurance policies, socially-responsible mutual funds, and the costs involved with stock and bond investments. It will also help prioritize personal needs and wants, that a finance planner may not have the foresight to inquire about.
Making a Personal Investment Strategy
The next step for smart investing is to make the plan. The help of a personal finance planner can be a great asset at this point as guidance and more in-depth knowledge may be needed to make the best decisions. Talk with a professional about financial goals, debt management, and options. Be sure to ask questions that could not be answered previously. Be honest and realistic about risk tolerance, the priority of investments over financial needs, and personal goals.
What is in a personal investment strategy? This is the road map for a lifetime of smart investing. It includes an assessment of present financial situations, future projections, and all of the financial decisions in between.
Why Diversify Investments
No personal investment strategy is complete without diversification. Smart investing means reassurance that the risks involved are cushioned by the use of multiple investment avenues. Mutual funds may not be as risky as stock trading, but as a single investment they could be considered risky. What if one fund yields a small return after the associated expenses are covered?
This is why it is so important to diversify investments. Put money in a combination of stable investments such as bonds and CD’s, more variable types, such as mutual funds, and then some individual stocks. Take out a life insurance policy and set aside a certain amount of money for a retirement fund or personal savings account. With an array of investments, each of which has been examined for potential, risk, and personal suitability, an investor is guaranteed to profit. Research investments, learn about different options, seek guidance, and diversify. Following these tips makes smart investing attainable for everyone.