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