| If you have money to invest, you might | | | | well. |
| contemplate investing in mutual fund. What is | | | | The next question would be if we investors can |
| mutual fund? Mutual fund is simply a collection of | | | | do better than stock market index fund of |
| stocks that are bought using money pooled from | | | | 10.5%? A lot of people believe they can. But, the |
| various individual investors. Historically, average | | | | path ahead is full of obstacles. First, you need to |
| mutual fund returns 2% less annually than a stock | | | | get educated about stocks in general and how to |
| market index. | | | | calculate the fair value of a common stock. Next, |
| While the return is less than stellar, there are | | | | you need to open a brokerage account to |
| several advantages of investing in mutual fund. | | | | execute your buy and sell order. Finally, you need |
| They provide diversification, economies of scale | | | | to keep abreast of new developments. Business |
| and liquidity. So, the question you want to ask | | | | comes and goes. Industry rises and falls. Examples |
| yourself is whether you want to have a smaller | | | | of industry that used to dominate are: |
| return for the advantages mentioned previously. | | | | typewriters, cassette players, sewing machine |
| While two percent difference looks small, it is not | | | | and traditional camera. If you don't read often, |
| pocket change. Investors who set aside $ 1 a | | | | you may predict that certain stock has a high fair |
| day, would have $ 562,000 of savings in fifty | | | | value even when the entire industry is collapsing. |
| years if he invests in stock index fund growing at | | | | It all comes down to individual investors. Would |
| 10.5% per annum. The same investors would | | | | they want to learn more and get a few more |
| collect 'only' $ 271,000 if he invests in average | | | | percentage return each year? Or would they let |
| mutual fund that grow at 8.5% per annum. | | | | someone else manage their money? Me, I prefer |
| There are also disadvantages investing in mutual | | | | to learn how to manage my own investment. |
| funds. There is a problem on how to choose the | | | | Sure, it is time consuming. But giving a little bit of |
| 'right' mutual fund. If average mutual fund returns | | | | your time may give you the potential to double |
| 8.5% annually, the below-average fund will give | | | | your retirement money in fifty years. The |
| you less than that. Just like picking a stock, you | | | | potential is rewarding and someday you might |
| would find some stocks that outperform the | | | | even manage someone else's money. |
| average and other stocks that do not perform | | | | |