Choosing a Mutual Fund

Deciding to purchase a mutual fund is the first step toward your financial goals. Deciding which mutual fund to purchase is a bit more difficult.

What is a mutual fund? Basically, mutual funds are a way individuals can afford to buy various stocks, bonds, and individual securities, with one mutual fund purchase. You give professional investors your money, they invest for you.

There are thousands of mutual funds, where do we start? Today's mutual funds have different categories for every possible investment goal. Because there are so many funds, all you do is decide what you want. First ask yourself, why are you investing. Different people invest for different reasons. Some invest for income, their children's college, or for retirement. Whatever your individual reasons are, give yourself a time frame, to achieve these goals. If your time frame is 7 years or under, you might choose a more conservative fund with less risk. If you have 10 years or more, a high risk, more aggressive fund is probably for you. 

Assessing what your willing to risk is also important. Some people aren't comfortable with a volatile market. If watching your money fluctuate at times causes you to panic, try a more conservative fund. If volatility doesn't stress you out, you might want to go aggressive. Ther's no wrong or right way, it's what you're comfortable with. Keep in mind, if you want a 30% return, you must be able to afford a 30% loss. Young investors tend to be more high risk. People near retirement  tend to be more conservative.

Generally, there are two investment types: Equity and income. Equity means ownership through stocks, which is usually high risk. Income produces current income through bonds, which are less risk. Investors willing to mix stocks, bonds, and even money market securities, have a better chance of getting higher returns over time. Combining the growth potential of stocks,  with the income of bonds, and the stability of money markets, ia a good way to start investing.