Mutual Funds


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It’s a jungle out there and picking the right stocks with your hard earned money can be a task that rises your stress level, and makes the hours of research unbearable. Not everyone is a stock or investing guru. Yes it can be learned, but there is always a stepping stone, and mutual funds offer that to young, or unseasoned investors looking to wealth build.

mutual fundsWhat are mutual funds?

Mutual funds sound exactly the way they sound. A stock portfolio that is comprised of multiple stocks and bonds, funded by various numbers of investors. Essentially you and these other investors become mutual investors pouring your money into this portfolio and each investor essentially gets a piece of it, in ownership and selling ability for profit. And they don’t cost that much either when it comes to an initial investment. Buying up mutual funds can cost as little as a couple hundred dollars to a few thousand dollars, depending on what kind of portfolio you are looking to invest in. Now you wouldn’t manage your stock portfolio on your own. In most cases there is a fund manager that is placed in charge of the portfolio, and is set in charge of selling or buying new funds. So in essence, an fund manager is a lot like a government elected official that takes on the role of delegate. Someone who is placed in charge of running the show, while those that have placed the manager in charge may go about their daily lives and reap the benefits of the manager’s work. You and the other investors are paying this fund manager to manage your mutual funds based on their experience and knowledge of how investing should be conducted.

Stocks and Bonds

There are many types of mutual funds that you can invest in, the most popular two being stocks and bonds. Traditional stocks and bonds are purchased for the portfolio and then divvied up between the many investors who invest their money into the portfolio. Just as you would buy or invest in a company’s stock on your own, the same would occur with a mutual fund. But the same amount you have to gain on ownership or the sale of a stock, you have just the same amount to lose on it as well. I’ve said it in the past, and remain committed to it still, that investing in bonds is a more safe way to invest your money for a better return. While bonds take time to mature, you are almost guaranteed back you initial investment plus the interest gained over the period of time you own the bond. The same application of these works when buying bonds via a mutual fund, because you are still investing in a bond. As stated before, the cost of the bonds that you would be investing in would be spread out among all the other investors.mutual funds

Taxes

Taxes are applied to all those whom own stocks or bonds within the given mutual fund. So if your fund manager is able to sell stocks while they are much higher than the purchase cost, the mutual fund owners are subjugated to the taxes that are applicable to the stocks that have been sold off. The capital gains tax is required to be paid by each individual investor that made even a little bit of profit on the sales of these stocks. But you are a part owner in all of these stocks, and there is a down side. It is possible that you as a group would have to pay a capital gains tax, even on shares you may still own. Because it is the group that owns the mutual fund that is being taxed as a whole. So imagine the funds manger sells off stock, but you personally decide to hold onto that stock; so you maintain 10% of a stock with 90% of the ownership it sold off. While you personally maintain the last 10%, the government is going to tax you as a member of the group on the sale of the 90%. While the taxes may be a downside for the individual over the group, for the most part the membership of being part of a mutual fund still gives power to the individual investor by allowing for the cost of the investment to be subsidized by many investors.

There are pros and cons to any type of investing. Mutual funds offer another option to investing by allowing for the cost of investments to be subsidized by a group of investors and managed by a fund manager that gives the mutual fund a better shot at making money. Having an investment group to help out with the buying and selling of these stocks and bonds, contributes to taking stress off of the individual investor and gives power to the group.

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