Mutual Fund And Why Should I Care?

What is a Mutual Fund and Why Should I Care?

It is unfortunate that there is not more time spent in school teaching young adults and teenagers the in’s and out’s of the financial industry. For many, terms such as “mutual funds”, “bonds”, “401k’s”, and “annuities” are scary and unfamiliar. Young adults assume that only people with a lot of money, who have the resources to hire financial advisors, need to know what these words mean or, what they can do for them. This is a mistake. Every working adult should have a basic working knowledge of the investment industry so they can take advantage of it. Investing is not reserved for the wealthy. Investing is a money-making opportunity for everyone. To make your money work for you, you need to spent
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To understand what a mutual fund is, you need understand mutual funds are made of: stocks and bonds.

Stocks, essentially, are pieces of ownership of a company. When a company “goes public”, they are breaking the ownership rights of the company in small pieces called stocks, which the public can purchase. Each stock is a “share” of that company. Each share is worth a certain price, which is dependent on the market at the present time.

Bonds are different. When you “buy” a bond, what you as an investor are doing is essentially loaning that money to a company, state, or municipality. As the owner of the bond (the lender), you are entitled to interest back on your loan within the bond’s terms.

A mutual funds is a collection of a variety of different stocks and/or bonds. Mutual fund companies collect together several stocks and/or bonds that they feel will be profitable. As a buyer, you can buy shares of this “fund”, which means, in a way, that you are buying shares of all the different stocks and/or bonds in that
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You could go to the store and buy 2 chocolate bars, 4 wedges of cheese, 1 bottle of wine, and 1 package of crackers — sure. But, it might be easier, and it might even save you some money, if you buy a pre-made gift basket that contains all these items and more. Mutual funds are the gift basket. The items that make up that gift basket are stocks and/or bonds.

Why Should you Care?

If you’re wondering why young professionals should care about mutual funds, you’re not alone. Many young adults will read the above information and fail to see how that matters to them. If they cannot afford to buy a decent amount of individual stock, how are they going to be able to afford a pack of them?

Mutual funds allow buyers with little investable cash to be able to get into the market. Often, when purchasing a mutual fund, it’s possible to acquire ownership of stocks that were too expensive to buy individually, but can now be afforded (through the fund) since the buyer is able to purchase, basically, partial shares.

Secondly, mutual funds are professionally managed by the mutual fund company. If you build your own portfolio of stocks and bonds, it will be up to you to manage it (ie: watch the market and buy/sell as you see fit). Mutual funds allow you to buy in and let the mutual fund company make those market

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