What exactly is a mutual fund? A mutual fund is basically a pool of money (yours and other investors) used to buy larger quantities of stocks and/or bonds than a single investor would likely be able to purchase alone. The funds are usually managed by a company or brokerage firm. Before choosing a mutual fund to invest in, be sure its objectives are in line with your own. For example, are you interested in aggressive growth or high income, would you morally oppose the companies a certain mutual fund invests in, or do you like what you know about the fund manager's record? A must is reading the mutual fund's prospectus, which will tell you all about the fund and its investment policies.
Index funds are also very popular. An index fund is a mutual fund that mirrors the market's average. That is, the objective of the index fund is to match the market's performance and not try to beat it. This appeals to those who believe a fund manager can not repeatedly beat the market's average over a long period of time. Another appeal of the index fund is that they generally have low expenses associated with them. This is due to the fact that managers are not being paid to manage, no research fees need to paid, etc. This is what originally drew me to index funds. Some of the more well-known index funds include Standard & Poor's 500 (the S&P 500) and the Vanguard 500 Index.
The topic of expenses leads me to a final topic...loads. A load is a sales fee. If you employ the services of a financial planner or broker, you will pay a commission. For this reason, you may find your planner or broker pushing certain funds. In contrast, a no-load fund (like an index fund) has no sales fee. Be aware of back-end loads which means you will pay a fee when you sell the fund, instead of when you buy it.
There are many personal decisions to be made before choosing a mutual fund to invest in. Do your own research and ask as many questions as you need to and you may find that mutual funds are right for you. Happy investing!
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