If you have ever set up a retirement account such as a 401K or if you have every picked up a money management magazine, you have probably heard of a mutual fund. If you don’t know much more about it other than that it is an investment, you are not alone. Many people are in the dark when it comes to investments, and a mutual fund is neither a stock nor a bond, the two most common investments.

If you want to invest but you don’t know a lot and don’t want to spend a lot of time learning about it and actually doing it, mutual funds are great for you. They are simple compared to complicated investments like derivatives or commodities.

When you invest in a mutual fund, you are investing in a mix if different stocks, bonds, or both. To put it simply, several people, often hundreds or thousands, pool their money together. This is the money they are investing and this is given to the fund manager.

This fund manager then takes the money and invests it into a wide variety of stocks, bonds, or a mix of the two. They then divide the portfolio into shares and give you some according to how much money you put in.

Then, over time you can continue to buy these shares. When stocks in the fund go up in value, so does the value of your shares in the mutual fund. If they go down, so does the value of your mutual fund.

In a good economy, ideally the value of your mutual fund shares should be increasing. With mutual funds you get an automatically diversified portfolio. Diversification is when you are invested in many different industries and companies and this reduces your risk.

Because mutual funds are already diversified, they are great for new investors or for those who have no desire to choose their own stocks and build their own diversified portfolio.

If you are interested in investing, and you should be at least to start saving for retirement, mutual funds are a great place to start. With a good mutual fund, you can watch your money grow. Check out the link below for more information.

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