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Mutual Funds 101 - Investing for Dummies

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Investing 101: What Is Investing?

Investing 101: What Is Investing?



Investing for dummies can't get any smarter than investing in mutual funds. We'll begin with a simple mutual funds definition, then move on to the basics. Within a few minutes, you'll be ready to begin building a portfolio of mutual funds. Here's everything you need to know for your Mutual Funds 101 virtual class:



Mutual Funds Definition



You are already aware that mutual funds are a type of investment or savings vehicle.
But what are they? Are they like stocks or bonds? How do mutual funds work? A good way to understand mutual funds is to look at them as a basket of investments. The reason is that one mutual fund often invests in dozens or hundreds of other investment securities, called holdings, such as stocks or bonds. Therefore, when you buy a mutual fund, you are not buying one particular stock or bond; you are buying a basket of stocks or bonds (or sometimes a combination of both).

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How to Get Started Investing With Just One Mutual Fund

How to Get Started Investing With Just One Mutual Fund



You may have heard the wise saying, "Don't put all of your eggs in one basket." This is good advice about something called diversification but investing does require money and beginners don't always have enough money to cover the initial investment minimum (often $1,000 or higher) for more than one fund.



Fortunately, and as you already know from reading this article, mutual funds are like baskets that hold dozens or hundreds of other investment types and you need to find a fund or group of funds that is appropriate for your goals and risk tolerance. However, you can find mutual funds that meet all of this criteria in just one fund; they are diversified portfolios in themselves.

Examples include balanced funds and target-date funds, both of which can invest in a wide range of stocks and bonds, all within just one fund. For this reason, these fund types can be best for beginners.

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Choose DIY or Use an Advisor

Choose DIY or Use an Advisor



Before buying your first mutual fund, you may want to do some honest reflection and determine if an investment advisor is a wise choice for you. Investing with mutual funds can be easy and you can find investing success after doing just a little homework. However, investing is not for everyone. If you don't want to take the time to research mutual funds or, equal and opposite, if you think you'll spend too much time analyzing and worrying about the fluctuation of your account value, an advisor may be the best choice for you.

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What is Your Investment Style?

What is Your Investment Style?



Another reflective activity and personal choice in buying mutual funds is to find out the best investment style for you. Chances are, if you are attracted to the simplicity and power of mutual funds, you may not be a market timer or interested in technical analysis but perhaps an investor who would grow into a tactical asset allocation style, which combines simple strategies with some of the prudent qualities of the buy and hold strategy.

20 Rules for Successful Investing

Saving is a Prerequisite to Investing.



Saving is a prerequisite to investing. Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and building wealth.

3 Best Wealth-Building Investments.



People of all economic means make their money grow in ownership assets - stocks, real estate, and small business - where you share in the success and profitability of the asset.

Be Realistic About Expected Returns.



Over the long term, 9 to 10% year is about right for ownership investments. If you run a small business, you can earn higher returns and even become a multimillionaire.

Think Long Term Investing.



Because ownership investments are riskier, you must keep a long-term perspective when investing in them. Don’t invest money in such investments unless you plan to hold them.

Match the Time Frame to the Investment.



Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment. For example, for money that you expect to use within the next year, focus on safe investments, such as money-market funds.

Diversify



Diversification is a powerful investment concept that helps you to reduce the risk of holding more aggressive investments. Diversifying simply means that you should hold a variety of investments that don’t move in tandem in different market environments.

Look at the Big Picture First.



Understand your overall financial situation and how wise investments fit within it. Before you invest, examine your debt obligations, tax situation, ability to fund retirement accounts, and insurance coverage.

Ignore the Minutiae.



Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets. Ultimately, the prices of stocks, bonds, and other financial instruments are determined by supply and demand.

Allocate your Assets.



How you divvy up or allocate your money among major investments greatly determines your returns. The younger you are and the more money you earmark for the long term, the greater the percentage you should devote to ownership investments.

Do Homework Before you Invest.



You work hard for your money, and buying and selling investments costs you money. Investing isn’t a field where acting first and asking questions later. works well. Never buy an investment based on an advertisement or a salesperson’s solicitation of you.

You are what you Read & Listen to.



Don’t pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity. Find out how to evaluate the quality of what you read and hear.

Consider the Value of Your Time...



Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds and exchange-traded funds is both time-efficient and profitable.

Keep an Eye on Taxes.



Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts.

Where Possible, Minimize Fees.



The more you pay in commissions and management fees on your investments, the greater the drag on your returns. And don’t fall prey to the thinking that “you get what you pay for.”

Ignore Soothsayers....



Predicting the future is nearly impossible. Select and hold good investments for the long term. Don’t try to time when to be in or out of a particular investment.

Minimize your Trading.



The more you trade, the more likely you are to make mistakes. You also get hit with increased transaction costs and higher taxes (for non-retirement account investments).

Hire Advisors Carefully.



Before you hire investing help, first educate yourself so you can better evaluate the competence of those you may hire. Beware of conflicts of interest when you consider advisors to hire.

You are What you Read..



You are what you read and listen to. Don’t pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity.

Your Personal Life and Health..



Your personal life and health are the highest-return, lowest-risk investments. They’re far more important than the size of your financial portfolio.

Don’t Expect to Beat the Market.



If you have the right skills and interest, your ability to do better than the investing averages is greater with real estate and small business than with stock market investing.