We regularly hear a chorus of voices encouraging us to buy mutual funds. And, perhaps you're asking, "What is a mutual fund?"
"A mutual fund is simply a way to participate in the stock market," says Dale Rathgeber, a mutual fund expert at OctoberStrategy.com, "These funds allow you pool your money, along with thousands of other people, and invest it in stocks or bonds.
"You, and the thousands of others who invest in the same fund, share the costs of research, diversification, and brokerage fees. This allows you to start investing with as little as a few dollars a month, while investing in stocks and bonds on your own would require much more.
Rathgeber adds, "Some commentators say mutual funds have democratized investing, because you no longer have to be wealthy to invest in the stock market. And that's important because almost all of us are living longer after we retire, and we need to invest in the stock market to build up our retirement funds. Over the past three decades, many mutual funds that invest primarily in the stock market have averaged a return of more than 10% a year.
"Of course there's some risk involved in buying mutual funds, but at the same time, failing to invest in the stock market exposes you to another kind of risk. More specifically, if you try to save for retirement using saving accounts, guaranteed investment certificates, or the like, then your savings will likely be eroded away by inflation. For example, if your savings earn two percent a year and inflation is also two percent a year, then you're just breaking even. And that's before taking into account taxes on your earnings if you have your savings outside a Register Retirement Savings Plan.
"The risk with mutual funds involves the ups and downs of the stock and bond markets, but those can be offset to a greater or lesser extent," says Rathgeber, "First, investing through mutual funds means you have professionals picking the stocks that go into the funds. Second, there's a wide variety of mutual funds available, and you can pick one that matches your needs. Or better yet, you can pick several. If done properly, this diversifies your holdings, and makes your investment less likely to suffer from wild swings in the stock market.
"Of course, if you're a number of years away from retirement, then you will have many years to recover if you suffer any losses. You can afford to take more risks with your funds, because the returns, what you earn, generally go up as the risk goes up," says Rathgeber.
"But no matter who you are, or what your investment needs, you should start by learning as much as you can about mutual funds. You can find advice in bookstores, libraries, and on the Internet. You can learn by attending seminars or by reading on your own. You can also talk to friends and financial advisors.
Rathgeber adds, "In the end, every investment choice involves tradeoffs, and the more you know, the better your choices, and the more likely your retirement will be financially secure."
"A mutual fund is simply a way to participate in the stock market," says Dale Rathgeber, a mutual fund expert at OctoberStrategy.com, "These funds allow you pool your money, along with thousands of other people, and invest it in stocks or bonds.
"You, and the thousands of others who invest in the same fund, share the costs of research, diversification, and brokerage fees. This allows you to start investing with as little as a few dollars a month, while investing in stocks and bonds on your own would require much more.
Rathgeber adds, "Some commentators say mutual funds have democratized investing, because you no longer have to be wealthy to invest in the stock market. And that's important because almost all of us are living longer after we retire, and we need to invest in the stock market to build up our retirement funds. Over the past three decades, many mutual funds that invest primarily in the stock market have averaged a return of more than 10% a year.
"Of course there's some risk involved in buying mutual funds, but at the same time, failing to invest in the stock market exposes you to another kind of risk. More specifically, if you try to save for retirement using saving accounts, guaranteed investment certificates, or the like, then your savings will likely be eroded away by inflation. For example, if your savings earn two percent a year and inflation is also two percent a year, then you're just breaking even. And that's before taking into account taxes on your earnings if you have your savings outside a Register Retirement Savings Plan.
"The risk with mutual funds involves the ups and downs of the stock and bond markets, but those can be offset to a greater or lesser extent," says Rathgeber, "First, investing through mutual funds means you have professionals picking the stocks that go into the funds. Second, there's a wide variety of mutual funds available, and you can pick one that matches your needs. Or better yet, you can pick several. If done properly, this diversifies your holdings, and makes your investment less likely to suffer from wild swings in the stock market.
"Of course, if you're a number of years away from retirement, then you will have many years to recover if you suffer any losses. You can afford to take more risks with your funds, because the returns, what you earn, generally go up as the risk goes up," says Rathgeber.
"But no matter who you are, or what your investment needs, you should start by learning as much as you can about mutual funds. You can find advice in bookstores, libraries, and on the Internet. You can learn by attending seminars or by reading on your own. You can also talk to friends and financial advisors.
Rathgeber adds, "In the end, every investment choice involves tradeoffs, and the more you know, the better your choices, and the more likely your retirement will be financially secure."
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