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Mutual Funds
A mutual fund is a collection of stocks, bonds, or other securities that is owned by hundreds or thousands of investors and managed by a professional investment company. You buy shares in the fund and “pool” your money with other shareholders. The pooled money has more buying power than one investor alone, so a fund can own hundreds of different securities. Thus, its success does not depend on how just one or two companies perform.
A mutual fund makes money in several ways: by earning dividends or interest on the investments it owns and by selling securities that have appreciated in value. You, in turn, make money in the form of dividends and interest that are passed on to you and the increase (or decrease) in the fund's value.
Investment professionals manage the fund and choose which stocks and bonds to buy. By owning part of a fund, the hard work of selecting and monitoring stocks and bonds is done for you.
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