Investing can be very scary and frustrating due to the new concepts and because you are turning you nest egg over to someone you may not even know well or at all.
One of the most popular investment vehicles used today is the mutual fund. They offer investors a way to prepare for the future in a simple, accessible and affordable manner. According to the Investment Company Institute, the number of mutual funds that are available to investors more than triples the number of individual stocks on the New York Stock Exchange. When you put your money into a mutual fund, it is pooled with money from other investors who have similar invest goals. A professional money manager then invests the money into a variety of securities that will help the fund achieve its stated goals. A mutual fund can be made up of any number stocks, bonds, or a combination of the two.
Diversification is central to having a balanced investment portfolio. No single investment performs well under all market and economic conditions. Owning a variety of securities smooth’s out the ups and downs that are sure to happen in the market. Diversification also helps to lower the risk in your portfolio by offsetting losses from some investments with gains in others. Mutual fund managers choose investments from different security types, countries, industries and/or market cap.
Mutual funds are loaded with convenient features as well. They are very liquid investments, which means you can sell all or some of the shares on any day the market is open. Mutual funds are run by professional money managers. That is one of the key advantages to owning mutual funds. The securities in the mutual funds are selected and monitored by professional money managers.
How to have mutual funds? Mutual funds can be divided into three groups, front-end, back-end, and no-load funds.
When purchasing shares of a front-end load fund (also known as A-shares), you pay a one time charge that is deducted from the initial investment. The charges range from 3 percent to 8.5 percent of the initial investment. Sales charges are reduced for large purchases or as you accumulate larger balances.
Back-end load funds do not charge an upfront fee, but have higher expenses over a longer period of time. Furthermore, if you sell your shares within a specified period, a sales charge will be assessed. The amount of the deferred sales charge decreases over each year until it disappears. Theses funds are also called B-Shares.
Generally you would buy no-load shared directly from the issuer’s sales force without any form of added sales charge. However, some have service fees. No-load funds usually do not have share classes.
