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> Overview

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DEFINITION:
An investment that collects money from many investors and puts it in the hands of professionals who invest it in a manner consistent with the fund's objectives/restrictions.

PROS:
Instant diversification; management by experts; can invest for variety of objectives; potentially less risky than investing in individual stocks

CONS:
Return may be reduced by fees and expenses; riskier than other investments; may lose money

Overview

As the name suggests, a mutual fund is for investors with mutual goals. The investment company that offers the mutual fund pools together money from many investors and invests on their behalf. Mutual funds allow you to spread your money among different types of investments with the help of a team of financial professionals. Even if you only have a small amount to invest, you can find a mutual fund that meets your needs.

A mutual fund doesn’t necessarily invest in one type of investment. For example, balanced funds invest in a mixture of stocks and bonds. Mutual fund investors have a wide range of choices such as:

Precious metals like gold and silver
Real estate
U.S. Treasury securities
Foreign companies

Mutual funds also utilize different styles of investing. As an example, a fund might use the growth or value style of investing.

Open-End Funds >>