Mutual Funds, Good, Bad or Ugly?

A mutual fund is a collection of stocks and/or bonds managed by a company. Buyers own shares of the fund instead of picking individual stocks.

Mutual funds have been the typical way for non-investors to invest. In other words, people throw money into a mutual fund as opposed to a bank account because they expect at least some kind of improved return. People who do this are in the ‘invest not to lose’ group. They hand their money over to a fund manager and hope for the best.

Fund managers are unfortunately very short-sighted by nature. They have to make returns fast to make the fund look impressive and keep their jobs. There are also costs and fees for owning the fund.

A mutual fund can produce income from dividends on stocks, interest on bonds, capital gains on sold securities (a security is an investment that represents either an ownership stake or a debt stake in a company) or by selling the fund at a higher price you bought it for.

If you want to really learn while you invest mutual funds probably aren’t a good option but it is normally safer than randomly picking stocks.