Mutual Fund-amentals

A detailed Summary of Mutual Fund-amentals

Big, fast, easy money. It is possible, thanks to mutual funds, but first you must determine whether you are willing to assume the obvious risks involved. You must also determine your earnings goals. Big dividends, quick? Expect higher volatility. Not a risk taker? Choose lower-volatility investments, but don't quit your day job. However, the first thing a potential investor must know is, of course, the basics, which is the premise of this speech. There are three significant areas which the beginning investor must have a complete understanding of: what a mutual fund is and how it works, fund structure, and how to choose the mutual fund that best fits your personal investment goals.

First, let me explain exactly what a mutual fund is. A mutual fund is an investment company that pools together investors' money to buy stocks and bonds. The company's investment managers buy up stocks and bonds of several companies and divide each of these into fractions which are spread out into shares which are sold to individual investors. For example, Dreyfus is a major investment company. The Dreyfus Fund is a division of the Dreyfus Company. This fund's five major holdings are: General Electric, Microsoft, CitiGroup, ExxonMobil, and IB

There is more to choosing a mutual fund than simply saying, "Okay, I want one with major holdings in these three big gainers." First, you must assess your personal investment goals. In the market there is equal possibility of hitting high-yields as hitting rock-bottom. If you cannot afford to lose big, then do not take that chance. You may consider choosing a fund with holdings in so-called "old-reliables." These include companies such as General Motors, Anheuser-Busch, or BellSouth. These are companies who have remained strong through the long-haul and have proven that they can spring back from a loss. You need to determine whether your goals are short-term or long term. If you know you are going to "sell short," you may want to consider putting your money where the market's hot, also taking on the obvious risks involved. After you have determined your investment goals, it is time to determine what mutual funds fit these goals. Two useful resources for finding a mutual fund that fits your needs is the E*Trade PowerSearch or Quicken.com's Mutual Fund Finder. Through these searches you can find the exact kind of fund your looking for no matter how you weigh various factors. You can also use Morningstar.com's style boxes. These are 3X3 grids which show the level of growth/value of the company versus the company size. So you can see, after you have determined your goals, it is quite simpl

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