| If you are new to investing, you may have | | | | If capital preservation is your goal, then |
| heard of mutual funds but do not know exactly | | | | you should consider a mutual fund that |
| what they are or how to select the right one. | | | | consists of low risk equities and |
| A mutual fund is a collective investment | | | | conservative bond and money market |
| security, and there are many different types. | | | | instruments. If you want a mix of |
| It may consist of a mix of several | | | | investments, then you should look for a |
| different types of investment vehicles, such | | | | balanced fund. If you want explosive capital |
| as stocks, bonds, or derivatives, or it may | | | | appreciation, then you should consider a |
| consist of nothing but stocks that are part | | | | high-risk common stock or high-yielding bond |
| of a certain sector of the economy, or it | | | | fund. |
| could be just bonds. | | | | |
| | | | They are different than stocks when it comes |
| For example, there are mutual funds that | | | | to fees and expenses. As with stocks, funds |
| consist of nothing but technology stocks. | | | | are subject to capital gains taxes. But a |
| There are also funds that are comprised of | | | | fund is sometimes subject to a front-end and |
| stocks that have a similar market | | | | or back-end load. If there is a front-end |
| capitalization (such as mid-cap funds, | | | | load, that means that a percentage of the |
| large-cap funds, or small-cap funds). And | | | | initial investment is automatically deducted |
| some might contain several different types of | | | | to pay for commissions to the fund. If there |
| securities (such as stocks, bonds, etc.) that | | | | is a back-end load, the investor must pay a |
| all fall within the same risk classification | | | | fee when the security is sold. |
| (high-risk, medium-risk, low-risk). | | | | |
| | | | Also, there is a 12b-1 fee that is often |
| Just like stocks, mutual funds have a price | | | | deducted to pay for advertising expenses |
| per share, also known as the Net Asset Value | | | | incurred for the marketing of the fund to the |
| (NAV). The NAV is calculated by dividing the | | | | public. Sometimes there is no 12b-1 fee, it |
| total value of the fund divided by the number | | | | depends. Investors might be unaware of the |
| of shares outstanding. As with stocks, the | | | | 12b-1 fee because it is sometimes deducted |
| price fluctuates on a daily basis and it can | | | | from the share price, so in a way, it is an |
| be sold just like any other security. | | | | invisible fee. |
| | | | |
| When deciding what fund to invest in, you | | | | I hope this introduction to mutual funds will |
| need to consider your investment goals. Are | | | | help you make some decisions regarding your |
| you looking for long-term capital | | | | investments. There are literally thousands |
| appreciation, or would you prefer to receive | | | | of different funds available, and brokerage |
| immediate income from your investment? You | | | | houses often have their own set of funds that |
| also need to evaluate your risk tolerance. | | | | they create for sale to their customers. |
| Are you willing to take a chance on a | | | | Talk to your broker and see if he or she can |
| speculative fund to potentially receive a | | | | help you identify the best investment vehicle |
| better return, or is capital preservation a | | | | for you. Just make sure you review the fee |
| high priority? | | | | structure of the mutual fund you are |
| | | | interested in before you invest. |