Investing for Beginners

Many people have discovered that mutual funds are among the least stressful and easiest ways to begin investing in the market.  A little information goes a long way in helping the beginning investor learn the ropes of mutual fund investing.

What Are Mutual Funds?

The most simple way to explain what a mutual fund is to think of a piggy bank in which individual investors, organizations, and companies all put in money.  A mutual fund, is a pool of money that exists from the various contribution sources, that a fund manager invests.  There are different types of fund managers that will invest the money in different ways.

• Fixed-Income fund Managers:   Invest in an effort to get the highest yields with the lowest risk
• Long-Term growth Managers:  Invest in an effort to beat the S&P 500 or the Dow Jones Industrial Average

Types of Mutual Funds

There are different types of mutual funds that you can invest in, including Closed-End Funds and Open-End Funds.  Some funds charge commission, and some do not.

Closed-End Funds are classified by funds that have only a limited number of shares available for purchase to the public.  The available shares are traded on the open market, and the limited number of shares cause these funds to be effected by the law of supply and demand.

Open-End Funds are typical mutual funds that do not have a set number of shares available to the public.  These funds, which make up the majority of mutual funds, issue shares to investors with prices determined on the current net value.  The shares are redeemed whenever an investor decides to sell.

Mutual Fund Advantages

Investing through the fund has a few advantages over other types of investing.  Primarily, the money is being managed by a professional who monitors the portfolio that the fund invests in constantly.  They devote their work time to selecting appropriate investments.  As an individual investor, trying to determine which stocks are good to invest in is very time consuming and most people don't have the time that a professional fund manager has to do the research. 

When you invest in mutual funds, you don't have to calculate financial ratios or analyze financial statements, and therefore it is far less stressful- especially for the beginning investor!

Selecting a Fund

A good rule of thumb is to know what you're investing in- in order words, you should understand the businesses that you invest in.  Every mutual fund has it's own investment strategy or purpose.  Some funds will invest only in start up companies.  Other funds will invest within a specific industry. 

How to Invest

Without a brokerage account, you can call or go to the fund's website that you want to invest in.  You'll be able to request an application and receive information about the minimum investment amount (it can range anywhere from $25 to $100,000 or more).  Some instances allow a waiver of a minimum investment, including some retirement account investments, or when you agree to make automatic deductions on a regular basis from your bank account for fund investing.