For this week’s lesson, let’s start with the basics! Today we’ll cover the investment vehicle called mutual funds. So what are they? Imagine this scenario. 10 of your friends want to start investing, but most of you don’t know how to choose good companies’ stocks and bonds. One of your friends, however, is an investing expert who studied business in college and they’ve worked and invested at the stock exchange for more than 20 years. Because he’s good at choosing investments, you all decided to pool your money together and have him handle it for you (you also give him a small commission). You all earn some profit depending on how well your friend’s investments work and how much money you’ve invested with the group. That is basically how a mutual fund works.
A mutual fund is an investment where lots of people pool their money together to invest in assets like stocks, bonds, money market, or other assets. These funds are operated by professional money managers and their goal is to invest the fund’s resources to earn money for the shareholders. That’s you when you invest in a mutual fund by buying their shares.
Now why should you consider investing in them?