Investing In Mutual Funds

When someone decides to take a chance with investing in mutual funds, investors need to consider how and what they expect from mutual funds.

Investors need to define the goal of what they expect to achieve from mutual funds. From saving for retirement, putting money aside to purchase a home or for some money for a child/children's college expenses, having a goal will help formulate a winning investment plan.

The investment plan should include a workable time frame as to when the investor is looking to capitalize on their return of investment.

Retirement savings may be either 20-30 years away depending on the current age of the investor. Purchases like a home carry a shorter time frame(between 5 to 10 years) because of the greater need to put the money aside for a substantial downpayment. College savings depends on the age of the child/children.

If the investor needs a quick return, they are advised to stay away from risky stocks. If time is on the side for quite a bit, then the investor can take more of a risky plunge into the market.

To determine how much an investor should put in, a personal financial budget (assets and liabilities) needs to be reviewed.

What type of portfolio should an investor have? Stock mutual funds carry a higher risk depending on how much was initially invested because of the ups and downs of the stock market. If the investor leans towards money market funds, they will not lose their initial investment but unfortunately a greater return is not expected with this fund.

There are 4 types of mutual funds: Stock funds, Bond funds, Money market funds and Balanced (Asset Allocated Funds) or Life Cycle Funds. Stock funds are on the New York Stock Exchange, the American Stock Exchange and NASDAQ. Bond funds allow investors to gain interest from a company's loan. The risk with this type of fund is the possibility of losing the principal invested in the bond. Money market funds are the most safest investment option. Investors have the option of drawing on these funds. Money market funds are not insured by the Federal Deposit Insurance Company (FDIC). Balanced funds are mixed funds of stocks, bonds, and cash reserves. These funds offer a high return dividends and interest with low risk involved. The Life Cycle Fund is one of the newest available mutual funds. These funds take the management responsibilities from the investor and put on the shoulders of the mutual fund company. This funds group together the stock, bond and money market funds for an enhanced portfolio.