A mutual fund is a professionally managed investment pool made up of money from a large group of investors. The most common investments made by mutual funds are stocks, bonds and short-term debt. When you invest in a mutual fund, you are actually buying shares in its portfolio, giving you part ownership in the fund and the money (hopefully) that it generates.
Mutual funds fall into two basic categories:
- Actively Managed Funds -- Money managers choose the investments where your money will go based on your specific fund’s objectives.
- Index Funds -- Not actively managed, but seek to replicate the movements of a specific financial market, such as the S&P 500.
The Upside of Mutual Funds
The Downside of Mutual Funds
Most people without great investment skills who simply want to have a financial cushion at retirement choose mutual funds as the investment vehicle of choice. However, before putting your money into any investment, do your research and choose a fund that matches your own level of acceptable risk.