Mutual Funds: The Fastest, Safest Way to Make Money Through Investing

You want to invest your money wisely. You want to make as much money as possible as quickly as possible. Nevertheless, you want to minimize your risk. Whatever reason you want to invest, you should forget the stock market, bonds, buying CD's, investing in gold, commodities and futures, or day trading--many experts say invest in mutual funds instead. You can make money faster, with much lower risk than through many other types of investments.

While many financial experts say buying Certificates of Deposits at a local bank can be a safe investment, you will often earn a much lower rate of return than if you buy mutual funds. The same is true of bonds. Millionaires have been made in the stock market, but people have also lost every penny they have investing in a single stock. While millionaires have been made in the commodities market, the risk is so high that a lot of money can also be lost, and it is certainly not a safe way to invest for your retirement. Day trading is a bad idea for almost everyone who invests, according to some.

To understand why some experts say investing in mutual funds is one of the safest and fastest ways to make money through investments, one needs to understand how different kinds of investments work. It will then become possible to see the potential of how much money can be made from mutual funds and what they are.

There can be little doubt that if you want a safe investment and want to make a little money; you can do both through either CD's or bonds. The problem is you won't earn as much as through mutual funds. A five year treasury note (bond) yields 2 percent, according to the website, www.bankingmyway.com, while a five-year CD pays on average 2.28%. If you invested $10,000 in a bond you might earn $200 a year in interest, compared to $228 if invested in a CD. Consider that since 1980, according to an article in www.shockedinvestor.blogspot.com, the average inflation rate has rarely been below 2%. In other words, most years the investment you would make would just help you keep pace with the rate of inflation--without any additional benefit. From 1980 to 1982 it was 6.44%, in 1982; 10.76% in 1981, 13.13% in 1980, and 11.26% in 1979. In the last 50 years, inflation has averaged 4.35%.

Well known financial expert Dave Ramsey says in two books, Financial Peace University Workbook and Financial Peace Revisited, that investing in a single stock in the stock market is very risky. When you buy stock, you actually buy ownership in the company. If the company increases in value or pays you dividends, you earn a return. If it decreases in value, you lose money. We have all seen how much money one can lose during a stock market crash in a recession.

Although many people believe buying gold is a good investment, the website, http://mountainsteps.blogspot.com, quotes Ramsey as saying gold has no more intrinsic value than paper money and that no failed economy has ever returned to the gold standard.

Financial experts also say that investing in the commodities market or day trading is also risky.

Ramsey says investing in mutual funds, however, is a much safer way to make money faster than other kinds of investing, because of how the funds work. When one buys a stock in the stock market, he is basically putting all his hopes that the company will prosper and lots of other people will buy stock too, believing the same thing as he does.

With mutual funds, however, a group of people buy into a fund that is invested in whatever the fund objective is for that particular fund--whether growth stocks, corporate bonds, or international stocks. The money is invested in multiple companies, so the risk is far lower. If you invest in a mutual fund, you might own stock in companies that make Coke, tires, toothpaste, flour, banks, and barns. Inflation rises because of everything we buy every day. If inflation rises it is because companies raise their prices, so if you own a little piece of the companies that are raising their prices, you will stay ahead of inflation.

How much money can one make with mutual funds? It is not impossible to make an average of 12% a year over ten years, if your money is invested in a good mutual fund, according to Ramsey. Could you lose money instead? Of course you could. Mutual funds are long term investments, however, and according to Ramsey in 2003 if you left your money invested during any ten-year period in the last 69 years, you would have mode money 97% of the time. You would have averaged 12% per year--considerably more than you might make with CD's or bonds. You might not strike it rich instantly like you could investing in the stock market, but your risk is so much less.

While mutual funds could fail, remember that for that to happen 100 to 200 large companies would have to fail all at once. If that would happen, the whole American economy would have probably have to collapse too. Would your CD's or bonds be safe then?

If you would invest $100 a year at 12% interest, after 10 years, you would have $23,004, after 25, you would have $187,885, and after 40, you would have $1,176,477.

You can manage your own mutual funds or have a professional do it for you. Before you contact an expert to invest in mutual funds, the Federal Government has a lot of information about the funds on the Security and Exchange Commission website at www.sec.gov.

Citations:
Financial Peace Revisited, Dave Ramsey, Lampo Press
Financial Peace University Workbook, Dave Ramsey, Lampo Group
When Investing, CD's Beat Bonds, Jeff Brown, Bankingmyway.com
Shocked Investor, NO author listed, Shockedinvestorblogspot.com
Dave Ramsey Thinks Buying Gold is Stupid and Doesn't Understand Inflation, No author listed, Mountainstepsblogspot.com
Invest Wisely: An Introduction to Mutual Funds, No author listed, Sec.gov