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