Investing? Start Right and Easy with Mutual Funds

If you think that investing is just for big net worth guys and big – named celebrities (read: Warren Buffet, Bill Gates and Tiger Woods), then you are wrong. There are a lot of ways for people without deep pockets such as you and me. One good way is to invest in mutual funds. This allows you to start on investing even if you are low on money and do not want to take a large risk. You can in fact start investing with as little as $50!

Now, what is a mutual fund? It is a consolidation of money of hundreds, perhaps, thousands of individuals and is invested in various types of securities. This is normally managed by professional managers who invest the collected money in financial securities such as bonds, stocks, or money market instrumentalities. The value of a share of the mutual fund, which is called the Net Asset Value (NAV), is computed on a daily basis and is equivalent to the fund’s total value divided by the total number of outstanding shares for the day.

Mutual funds began in the US in as early as 1924. To date, there are more or less tens of thousand of mutual funds, managed by over 600 different companies across the states and is worth more than four billion dollars.

What is special about mutual funds is the diversity in which it is invested. US laws require that no more than 5% can be invested in a single security for 75% of the total fund. Thus, you are sure that your investments are spread over a large number of investment types and industries. Any businessman would tell you that diversification is the best antidote to falling stock prices. This allows you a buffer should one investment fails. With mutual funds, you get to diversify your portfolio for a small amount of money invested.

Another good thing about mutual funds is the fact that you can start small and grow your investments over time. Other forms of investment options require larger sums of money. With mutual funds, you can start with what little you have right now.

Third good news is that you get professional management services at very little cost. Mutual funds are managed by professionals that do nothing but make your funds grow. It is like hiring a full – time fund manager for a measly fee. You get to sit back and relax as your fund grows. However, make sure that you choose the right company handling your funds. It is good to look at the track record of companies offering mutual funds for the last 5 or 10 years so your get properly apprised of their capacities and profit – generating potential.

Mutual funds usually yield around 12% per annum. This is higher than savings deposit rates. It is thus a worthy alternative.

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