Mutual funds are the backbone of many American's retirement account investments, but many investors aren't really sure what they are, or how they work. Simply put, a mutual fund is a company that pools money from many investors and invests those funds into different securities like stocks and bonds which are selected based on the objectives and goals of that fund. Each mutual fund company will typically have multiple funds for investors to choose from with different goals for each fund. For example, a "growth" mutual fund will invest with the goal of growing the value of the assets over a long term, for perhaps a retirement account. An "income" fund on the other hand will have a goal of providing an income to its investors and may be favorable for individuals that have already retired and are looking to turn their investments into income in retirement. Below are some frequently asked questions about mutual funds, and more information.
"How does a mutual fund grow my investment?"
- Mutual funds grow in three ways
"Do mutual funds have risk?"
Yes. All mutual funds assume some degree of risk. The amount of risk taken will depend on the fund chosen, and the goals of that fund. Choosing a mutual fund that fits your risk tolerance and goals is very important. If you aren't sure which mutual funds are right for you, you should consult with your financial professional for advice.
"What are the benefits of mutual funds?"
Mutual funds have many benefits, but some of the highlights are as follows:
"How do mutual fund fees work?"
Mutual funds charge fees to cover the operating costs of the fund. For example, the salary of the fund manager, and all other employees, marketing and advertising materials, and other administrative expenses are incurred by the fund. The fund will charge a fee to the investor to cover these costs. These fees can vary greatly, and are an important element to consider before purchasing a mutual fund. You should consult with your financial professional about the fees and expenses of the mutual fund you are considering before purchasing.
If you have more questions about mutual funds, we would like to hear from you. Send us a question, or schedule an appointment directly with us and we will have a registered financial professional reach out to help.
What are mutual funds -investor.gov