What is a Mutual Fund?

Definition:

Mutual funds give people a way to invest in a diverse mix of stocks, bonds, or other securities by buying shares of a larger pool that’s managed by a professional.

🤔 Understanding mutual funds

Mutual Funds are professionally managed pools that allow people to easily invest in a mishmash of securities, like stocks and bonds. Most of the time, they’re focused on stocks (aka, equities), but they can also come in different flavors, with a focus on bonds, foreign equities, or even risk levels. They’re managed by professional investors, who decide where to invest the pool, and they’ve become a popular destination in company-sponsored retirement plans, where workers place their hard-earned dollars. But their convenience isn’t free: Mutual funds come in different share classes with different fees and expenses. The potential risk and rewards of mutual funds are discussed in each fund’s prospectus.

Takeaway

Buying a share in a mutual fund is kind of like getting served a bowl of salad…

Everyone who owns a share in a mutual fund gets the same mix of investments, whether that’s stocks, bonds, or cash — and every bowl has the same proportion of ingredients. As the value of the fund as a whole rises or falls in value, each person’s investment fluctuates with it.

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