Learn About Mutual Funds

As an adult junior college student, I enjoyed taking many classes. One of the classes I really enjoyed and learned quite a bit was a class on the stock market. I took a special interest in learning about mutual funds. Many readers may be very acquainted with this subject, but I would like to impart some information to those of you who may be less informed about the subject.

A mutual fund is a financial service organization that receives money from individuals, invests it for a specific purpose, earns a return on it, attempts to make the investment grow, and shares its results with other investors.

The name mutual fund is given because it exists for the benefit of all their shareholders.

My instructor at Los Angeles Valley College stated that $500 is a good amount to start an investment. Of course, he is suggesting this to young college students. Perhaps a little larger amount might be more appropriate for the older student like myself.

This instructor started out by asking, "How does a college student accumulate $500? He answered his own question. "Start an account, add a few dollars each week, refrain from using this account for anything else. Interest earned will help it grow."

An investment with less than $500 is also possible, but the rule of thumb is: the more money invested, the greater the return.

There are many types of mutual funds. The kind of fund a person invests in depends upon the objectives. There are funds that deal with long term growth. There are those with aggressive growth. These are known as risk funds. Money can be made quickly on these, and it can be lost just as fast. Some funds specialize on a specific industry such as gold mining stock, genetic engineering or the aerospace industry; others contain a variety of industries.

It is a good idea that an investor add more money each month into his or her investments. This is what is known as dollar cost averaging. My instructor said that it doesn't matter how much one puts in. This system protects the investor against price fluctuation and it helps guarantee a profit over a long range.

It is important to do research before selecting a fund. An individual can write or phone the fund company and ask for its prospectus and latest financial report. Addresses and phone numbers of the various companies that sell mutual funds can be found advertised in financial magazines such as Forbes, Money, and Barrons and in the business section of newspapers.

Read financial reports to find out how much the fund has gained or lost ------not only over the past year, but over the past five or ten years, and how much it has held up over the periods of major market downturns..

One investor, a lawyer and an evening student at this college has invested in mutual funds for many years. He started out by only putting $100 into a fund and now has 22 mutual funds. He has done a great deal of research on this subject. He thinks that by buying a variety of categories or industries, his chances of making money are good. One category can do better than others, therefore, the funds that are making gains can offset those that aren't doing so well. This lawyer has growth funds, income and balanced funds, which are also known as sector funds. He says that sector funds help him balance his portfolio. This means that he invests in volatile stocks as well as the stable ones. This lawyer has another formula which he says helps him with his gains. He sees to it that he sells and buys at least three funds a year. He does this with the hope that the three new funds will do better then the ones he sells.

Mutual funds can be bought at a brokerage firm through a stock broker or through investment consultants who are located at banks or financial organizations. An investor can also buy directly through the fund company. Many investors like to buy funds directly so that they don't have to pay a commission to a broker which is often required.

All mutual funds are regulated by the Security Exchange Commission (SEC). The SEC was organized to protect investors. All funds are required by SEC to disclose information about their assets and liabilities. They also must provide information about their profit and losses. If the data appears to be complete and honest, the SEC gives a green light for a company to issue stocks. This does not mean it passes judgment regarding the quality of the investment or how good or bad they may be for the investor.

The instructor told the class as they learn more about the market, they may decide many strategies as to investing their money. He said that he prefers putting only a third of his money into mutual funds, another third into certificates of deposit (CD's) and the last third into money markets. He feels that this type of investing could provide him with an early retirement.