Mutual Funds 101

Welcome to mutual funds 101 - your basics course in all things mutual funds! In this article we will take you through the basics of mutual funds, the best mutual funds for you and how to get started investing in the mutual funds game. There are many things that you need to know when becoming involved in investing of any kind. Even though mutual funds are a little more hands off than day to day trading of shares and futures, it is still important to know the basics of mutual funds so that you can make a wise decision about the best mutual funds for you.

What are Mutual Funds?

I am sure you are asking yourself the question, "Yes, but what are mutual funds?". What a great question! Mutual funds are a way of investing in the market in a group situation. Basically, the mutual funds gather together a group of people and ask them to put in a minimum amount of money which could be anywhere from $500 to $50,000. Some people will put in the minimum and some people will put in more than the minimum. At the end of each quarter or the end of each financial year, the mutual funds will return you a dividend - that is, a percentage of the profits they have made with your money. Dividend return is portioned out depending on the amount of money you put into the mutual funds in the first place. These dividends are often smaller than the dividends that are available when you invest directly in a company on your own.

Why Mutual Funds?

So why do people get involved in mutual funds if the dividends are often smaller? There are a few different reasons. The first is security. Because you are in a group your risk is shared amongst many people. You also do not have to invest as much money to get higher returns because there will be other people in the group who do that for you. Another great feature of the best mutual funds is that they are managed by professional investors. This means that you can know next to nothing about the actual market in order to make dividends from trading. If you were to go out on your own and try to invest you would likely spend thousands of dollars either on your education or on learning by trial or error. With the best mutual funds this education is supplied to you. You can get started with very little money in a mutual funds, whereas to see dividends from investing solo you would need to invest a lot more money.

Which are the Best Mutual Funds?

The best mutual funds for you are the funds that you can afford the minimum entry fee, return the best dividends within the group of mutual funds that have a similar minimum entry fee and which conform to the things that are important to you - these things might include the level of risk (low or high) and whether the investments that are being made by the mutual fund are environmentally and / or socially ethical. You may also want to take into account where abouts the mutual fund is based. For instance, it may be important to you that the mutual fund is based in the United States and that most of the investment it makes is in United States based companies. Or you may prefer that most of the investments were made offshore. Or perhaps you would prefer that there was a level of diversification so that if the economy slumps in one market, you still have your investments in other markets to make up for the loss.

Which ever mutual funds you choose, make sure you consult with your financial planner and / or accountant before committing any money even to the best mutual funds! It is important to always utilize your team and to take their advice when it comes to the things that they know best and that you may still be learning about and thus have limited knowledge of.