1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

Mutual funds have essentially brought investing to the masses.  Mutual funds represent pools of funds from thousands, or even millions of investors.  These funds are pooled into a single investment vehicle that has a ticker symbol and can be bought or sold on a daily basis.

 

Mutual funds come in a wide array of classes and asset mixes.  Some invest purely in stocks where some manages look to outperform an underlying index (active funds) or others simply look to match an index (passive funds).  Bond funds can pursue both, and some mix bonds and stocks to help investors outsource asset allocation selection.  Nearly any type of security, including venture capital, real estate, private equity, or commodities can be put into a basket and offered as a mutual fund.

 

A closed-end fund is an investment fund that issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like stocks, but because closed-end funds represent a portfolio of securities they are very similar to a mutual fund. Unlike a mutual fund, the market price of the shares is determined by supply and demand and not by net asset value.

 

In addition to trading commissions, mutual funds charge expense ratios.  Be sure to look up funds at Morningstar.com or related rating entities to fully investigate and research mutual fund strategies, expenses, and historical performance.

 

Objectives and Risks

 

Mutual funds offer investors instant diversification, which helps spread bets across investments and lower the risk that one could blow up and really hurt a portfolio.  They also let an investor hire a professional manager and invest really any amount (such as $1,000, or less) to get diversified quickly. Of course this is return for a fee, and active funds don’t have the best track records of justifying the higher fees they charge.

 

How To Buy or Sell It

 

Many thousands of mutual funds exist and they can be purchased directly through the mutual fund company, a bank, a brokerage or a financial planner. Close to 100 million individuals in the United States own mutual funds.  The commissions on mutual funds can vary widely depending on the company and the style of the fund. A load mutual fund charges you for the shares bought, plus a sales fee. A no-load fund sells its shares without a commission or sales charge, but management fees can be higher. (For an in-depth look at mutual funds, see our Mutual Fund Basics Tutorial.)

 

Strengths

 

Diversification

Reasonable cost

Many varieties

 

Weaknesses

 

Weak performance of mutual funds

Add fee layers

Layers and proliferation of fund varieties

 

Key Considerations

 

Liquidity:  High

Historical Returns:  High

Inflation Protection:  High (except for bond funds)

 


25 Investments: Options (Stocks)
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