Investing in the markets can provide you with the ability to build wealth that can help you prepare for retirement and the ability to leave assets to the next generation. However, investing in the markets requires a considerable amount of knowledge of economics and how markets trade. It can also be time-consuming to be constantly following the latest market-moving news happening daily. Mutual funds provide you with a way to invest in markets while having a knowledgeable professional money manager make investment decisions for you.
What is a mutual fund?
A mutual fund combines capital of multiple investors used to invest in financial markets, usually stocks and bonds. In some cases, other types of securities are purchased through the mutual fund.
How would a mutual fund work?
Professional money managers with relevant education, knowledge and experience are in charge of making investment decisions with the money investors contribute to a mutual fund. The objective is to earn capital gains and income from the various securities and financial instruments the fund manager has decided to buy with investor funds. Your mutual fund manager will invest in accordance with goals and risk tolerance outlined in the fund prospectus.
How do you benefit from a mutual fund?
Mutual funds are an attractive option for those who are not necessarily wealthy but would like to capitalize on the expertise of a professional fund manager. As an investor in a mutual fund, you may receive the benefits of the capital gains and the income earned through the mutual fund’s investment portfolio. You will receive benefits in proportion to how much capital you invested.
How do you receive your return on investment in a mutual fund?
There are three ways you will receive your return when investing in a mutual fund. The mutual fund will distribute funds to you via two of these methods.
Income earned through investments in stocks and bonds will be distributed to you as a cash payment. Stocks will earn income through dividends while bonds will collect interest payments. You will also have the option of reinvesting the money back into the mutual fund.
Capital gains is another way you can receive a return on your investment. If your mutual fund sells a security for a higher price than originally purchased, it will earn capital gains which you will receive in the form of distributions from the fund.
The third way you can receive a return can happen when the holdings in the mutual fund’s portfolio appreciate but is not sold. You will then have the option to sell your ownership shares in the mutual fund to gain from the appreciation in the fund’s portfolio.
Selecting the right mutual fund for you
Mutual funds come in all different shapes and sizes. Each fund has its own financial objectives and risk levels you should be aware of before deciding which one is best for you. Contact us and we can help you sort through your options and guide you through the process.
Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds. The prospectus contains this and other information about mutual funds. The prospectus is available from our office [or from the fund company] and should be read carefully.