| If you are new to investing, you may have heard of | | | | If capital preservation is your goal, then you should |
| mutual funds but do not know exactly what they are | | | | consider a mutual fund that consists of low risk equities |
| or how to select the right one. A mutual fund is a | | | | and conservative bond and money market |
| collective investment security, and there are many | | | | instruments. If you want a mix of investments, then |
| different types. It may consist of a mix of several | | | | you should look for a balanced fund. If you want |
| different types of investment vehicles, such as stocks, | | | | explosive capital appreciation, then you should consider |
| bonds, or derivatives, or it may consist of nothing but | | | | a high-risk common stock or high-yielding bond fund. |
| stocks that are part of a certain sector of the | | | | They are different than stocks when it comes to fees |
| economy, or it could be just bonds. | | | | and expenses. As with stocks, funds are subject to |
| For example, there are mutual funds that consist of | | | | capital gains taxes. But a fund is sometimes subject to |
| nothing but technology stocks. There are also funds | | | | a front-end and/or back-end load. If there is a |
| that are comprised of stocks that have a similar | | | | front-end load, that means that a percentage of the |
| market capitalization (such as mid-cap funds, large-cap | | | | initial investment is automatically deducted to pay for |
| funds, or small-cap funds). And some might contain | | | | commissions to the fund. If there is a back-end load, |
| several different types of securities (such as stocks, | | | | the investor must pay a fee when the security is sold. |
| bonds, etc.) that all fall within the same risk classification | | | | Also, there is a 12b-1 fee that is often deducted to pay |
| (high-risk, medium-risk, low-risk). | | | | for advertising expenses incurred for the marketing of |
| Just like stocks, mutual funds have a price per share, | | | | the fund to the public. Sometimes there is no 12b-1 fee, |
| also known as the Net Asset Value (NAV). The NAV | | | | it depends. Investors might be unaware of the 12b-1 |
| is calculated by dividing the total value of the fund | | | | fee because it is sometimes deducted from the share |
| divided by the number of shares outstanding. As with | | | | price, so in a way, it is an invisible fee. |
| stocks, the price fluctuates on a daily basis and it can | | | | I hope this introduction to mutual funds will help you |
| be sold just like any other security. | | | | make some decisions regarding your investments. |
| When deciding what fund to invest in, you need to | | | | There are literally thousands of different funds |
| consider your investment goals. Are you looking for | | | | available, and brokerage houses often have their own |
| long-term capital appreciation, or would you prefer to | | | | set of funds that they create for sale to their |
| receive immediate income from your investment? You | | | | customers. Talk to your broker and see if he or she |
| also need to evaluate your risk tolerance. Are you | | | | can help you identify the best investment vehicle for |
| willing to take a chance on a speculative fund to | | | | you. Just make sure you review the fee structure of |
| potentially receive a better return, or is capital | | | | the mutual fund you are interested in before you |
| preservation a high priority? | | | | invest. |