So, you have started to look at investment options…. But, with so many choices, finding a short-term or long-term saving strategy that fits your budget and goals can be challenging, especially when you are not familiar with each of your options.
One of the most common investment strategies is a mutual fund. According to MarketWatch, almost half of American households own shares in a mutual fund (April 12, 2012, Kirk Spano). However, before you jump on the bandwagon you should know what a mutual fund is and how they work.
A mutual fund is an investment strategy, which allows individual investors to pool their money together to purchase a collection of stocks, bonds, and other securities that might be difficult to obtain on their own; often called a portfolio.
Mutual funds typically invest in four different investments: money market, bonds (also called “fixed income”), stock (also called “equity) and hybrid, meaning combinations of the other categories. The advantage of this investment method is reduced risk, as the buying a variety of stocks, bonds or other investments minimizes the investor’s reliance on the performance of an individual stock, bond, or security.
The mutual fund is typically managed by a financial professional, who helps actively monitor the portfolio’s performance/growth and make decisions to buy and sell securities.
A majority of mutual funds are open-end, which means they are willing to buy/sell stocks from investors. There is no set number of share in the mutual fund, instead, shares are available to an investor based upon the current net asset value and the investor redeems the shares when they decide to sell.
When a new investor enters an open fund, the portfolio manager uses the investment to purchase additional securities/investments for the mutual fund.
A closed-end fund has a set number of shares that are available to the public only once, through an initial public offer and do not repurchase shares from investors. Once the public offering is over, investors can sell their shares to other investors. As a result, shares of closed-end funds normally trade at a discount to net asset value.
Knowing when and how to invest is important to your overall financial goals; Contact one of our experienced financial professionals to learn how they can help you secure your financial future!