Mutual Fund Investing -
Sharing Shares
Mutual Fund Investing is where a pool of money from numerous
investors is used to invest in a portfolio of securities. These
securities can be stocks, bonds, money markets, or any other
financial market available to the public. When your money is in a
mutual fund it is managed by a professional portfolio manager. This
is very important because they are trained by the best institutions
in the world in finance, and their job is literally to make you
money with your mutual fund investing!
Using their skills is a common
Investing strategy.
When you own shares of a mutual fund, you own a small part of the
entire portfolio. This is important because it allows you to
strongly diversify even a small amount of money into a strong
portfolio. So it cuts down your risk and gives you the advantages of
having a ton of money, even if you are working with limited
investment funds.
Distributions of interest income, dividend income and capital
gains/losses occur to investors in terms of the proportion of the
total number of mutual fund shares owned. So if someone owns twice
as many shares of the mutual fund as someone else then they will
receive twice the earnings/losses (of all forms) as the person who
only has half as many shares as them.
Investing in mutual funds levels the playing
field and allows anyone to use professionals to “run the show” for
you and invest in ways you would never be able to without the large
amount of money present in the fund.
Today there are over 8,200 mutual funds. This is compared to only
about 600 in 1980. The exponential growth of mutual funds has
allowed anyone, even the ordinary man (or women) to invest and earn
reasonable profits from their stocks, bonds, or other financial
markets with little to no previous knowledge of trading.
Currently the net assets of mutual funds are about seven trillion
dollars! That’s a lot of money no matter how you cut it. All of that
money is divvied up amongst normal people who have invested into
such funds.
So why is Mutual Fund
Investing so popular?
There has been a bull market for stocks and bonds; this has
encouraged more and more people to start investing if they haven’t
already. When people see other people making a lot of money they
naturally want in on it and will start handing their hard earned
money over to these financial funds to invest it for them securely
and with the knowledge only gained by being involved directly with
the markets and having the tools to make wise decisions.
The fund
managers are like the coaches of American football. They tell their
team how to operate and they pick the plays out to use and tell them
when to execute. They are the ones who are really making you your
money.
Another reason mutual funds have grown so fast over the past 20 or
so years is the change in employment trends. Now in America more and
more people are left to themselves to finance retirement.
This
change in the trends has caused many people to start investing more
and more. They want their money to go into safe investments that are
“hands off”. That’s why they pick these mutual funds.
Along the same lines of the last reason has to do with other
employment trends hitting America. One of the major ones is the fact
that now people are expected to have career changes 7 times in their
“career”.
This is very different from the traditional school of life
where you go to work for a company and retire 25 or 30 years later.
Now you must be ready for a lay-off that could have you out of work
for a few months while you get into another position. Having a
cushion is the only way to be secure in times like that.
For those
reasons mutual funds have grown at extraordinary speeds and continue
to make money for the people who put their money into the
“investment collective”.
Investing in Mutual Funds
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