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Mutual Funds
Finding Investment Balance with Mutual Funds
By Belinda Clarke
Ask anyone about the stock market these days and you'll likely be met with a groan or a negative response. Media reports are full of news about the crash of tech stocks and rapidly shrinking portfolio returns. But despite market volatility, investing is still a high priority for many parents. For those who are new to investing or don't have a lot of money to start with, mutual funds are a great way to begin saving immediately.
A steady upswing has been identified in the investment of American dollars in mutual funds. Today, reports indicate that mutual funds manage more than 150 million shareholders valued at more than $3 trillion. In part, this increase can be attributed to the advent of Individual Retirement Accounts (IRAs) and 401(k)s, but it also may have to do with the fact that overall, mutual funds are an efficient investment vehicle that appeal to a wide variety of investors. Many companies today no longer offer the same types of pension plan opportunities that were available in decades past. As a result, people are becoming more aware of the importance of investing and saving for retirement.
Elizabeth Shepard, a financial advisor and a vice president in the Private Client Group at Merrill Lynch, stresses the importance of saving early and saving often. "Investing in mutual funds gives young couples and new investors the opportunity to get started right away without a large financial commitment," Shepard says. "As little as $25 can get an investor started on developing an investment portfolio, allowing more people to start saving earlier in life."
Shepard adds that the availability of past performance information for mutual funds is an important resource for new investors. "Always look at how the fund has done over time so you can assess how that fund performed in both up and down markets," she says.
Put simply, a mutual fund is a pool of investments managed by a professional advisor. Investors purchase shares in a mutual fund, which are then combined with the shares purchased by other customers and invested in that fund, which is generally a variety of stocks, bonds and money markets. Depending on their overall financial goals, investors in mutual funds may choose between a variety of funds reflecting different levels of risk. Generally speaking, low-risk investments generate lower returns while higher-risk investments have the potential for greater returns. Specialized funds are also available to investors who wish to focus their investments on a particular industry, such as technology or health care.
