MUTUAL FUNDS...?
MUTUAL FUNDS?
As the average person what a stock is, they'll probably know. As for them what a mutual fund is, definitely not as likely. This is because in order to actually understand what a mutual fund is you must understand what a stock is. If you don't have a strong understanding of what a stock is, check out my previous blog post on stocks.
SO WHAT IS A MUTUAL FUND?
Think of it this way. There's a group of people who aren't experts in investing, so they want someone experienced and educated in the field to do it for them. So what they do is they give their money to an investment manager. This manager pools all the money from a large group of people and with their team they decide what to invest in with the money. The investment manager will buy a portfolio of many different stocks and other assets that they believe will help them to grow the money for their clients.
WHERE DOES YOUR DOUGH GO?
When you invest in a mutual fund, you aren't actually just giving cash to the investment manager. What you are doing is you are buying a share of that fund, just like in the stock market!
In order to buy a mutual fund, you can use many of the same sites that you buy stocks one. These include Vanguard, Questrade, and most Canadian and American banks. Just like stocks, you will be required to pay a trading fee for all of the trades you make.
Something that is very important for mutual funds is that they usually have high fees on them. They are called MER (Management Expense Ratio). Different funds will have different fees on them, but just keep in mind that they will charge you a certain percentage of your assets each year for their service. Usual fees range from less than 1% to 3%. Fund managers can make hundreds of thousands of dollars to millions of dollars along with their team, so the reality is that they are going to have to get paid!
HOW WILL I MAKE MONEY?
Making money with mutual funds is almost exactly like making money with stocks. Either the price of the mutual fund rises in value, or you receive dividend payments. The average rise in the value of a mutual fund is about 4-5%. This happens when the value of the assets in this fund rises. These assets can include stocks and other equities. The second way to make money is through dividends.
If you need to learn more about dividends, check out my last 'STOCKS...?' post. Essentially dividends are paid out by companies to shareholders providing them with a share in the profit. Since these mutual funds own stocks many mutual funds will pa there shareholders dividends which come from the stocks that they hold.
IS IT RIGHT FOR ME?
If you wanna invest your money and not have to worry about managing anything, mutual funds could be for you. They are a relatively lower risk than investing directly into stocks because the people managing them are often much better than the average person at managing finances.
The reward may not be as high as stock, but they are much safer.
Thanks for reading!
If you have any questions email me at icsoares02@gmail.com
As the average person what a stock is, they'll probably know. As for them what a mutual fund is, definitely not as likely. This is because in order to actually understand what a mutual fund is you must understand what a stock is. If you don't have a strong understanding of what a stock is, check out my previous blog post on stocks.
SO WHAT IS A MUTUAL FUND?
Think of it this way. There's a group of people who aren't experts in investing, so they want someone experienced and educated in the field to do it for them. So what they do is they give their money to an investment manager. This manager pools all the money from a large group of people and with their team they decide what to invest in with the money. The investment manager will buy a portfolio of many different stocks and other assets that they believe will help them to grow the money for their clients.
WHERE DOES YOUR DOUGH GO?
When you invest in a mutual fund, you aren't actually just giving cash to the investment manager. What you are doing is you are buying a share of that fund, just like in the stock market!
In order to buy a mutual fund, you can use many of the same sites that you buy stocks one. These include Vanguard, Questrade, and most Canadian and American banks. Just like stocks, you will be required to pay a trading fee for all of the trades you make.
Something that is very important for mutual funds is that they usually have high fees on them. They are called MER (Management Expense Ratio). Different funds will have different fees on them, but just keep in mind that they will charge you a certain percentage of your assets each year for their service. Usual fees range from less than 1% to 3%. Fund managers can make hundreds of thousands of dollars to millions of dollars along with their team, so the reality is that they are going to have to get paid!
HOW WILL I MAKE MONEY?
Making money with mutual funds is almost exactly like making money with stocks. Either the price of the mutual fund rises in value, or you receive dividend payments. The average rise in the value of a mutual fund is about 4-5%. This happens when the value of the assets in this fund rises. These assets can include stocks and other equities. The second way to make money is through dividends.
If you need to learn more about dividends, check out my last 'STOCKS...?' post. Essentially dividends are paid out by companies to shareholders providing them with a share in the profit. Since these mutual funds own stocks many mutual funds will pa there shareholders dividends which come from the stocks that they hold.
IS IT RIGHT FOR ME?
If you wanna invest your money and not have to worry about managing anything, mutual funds could be for you. They are a relatively lower risk than investing directly into stocks because the people managing them are often much better than the average person at managing finances.
The reward may not be as high as stock, but they are much safer.
Thanks for reading!
If you have any questions email me at icsoares02@gmail.com
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