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Simply put: What are mutual funds? (Video)

When you buy units of a mutual fund, you’re pooling your money with other investors. If you’re a small investor, this enables you to own a much wider mix of investments than you would likely be able to afford on your own.

To learn how investing in a mutual fund can be an effective way to save for important goals such as retirement or your child’s education, watch:

 

Video Transcription

Investing in a mutual fund can be an effective way to save for important goals such as retirement or your child's education.

What are mutual funds?

A mutual fund invests in a group of stocks, bonds, or other investments selected by a professional fund manager.

When you buy units of a mutual fund, you're pooling your money with other investors. If you're a small investor, this enables you to own a much wider mix of investments than you would likely be able to afford on your own.

Why invest in a mutual fund?

Mutual funds are simple to buy and often have low minimum purchases, so they can provide an easy way to diversify your portfolio.

Why is diversification important?

Because different types of investments have unique risks and perform differently at various times. In any given period, losses from one type of investment can be offset by gains in another. So having a diversified portfolio can help you to achieve steadier results.

What are the main types of mutual funds?

The three main types of mutual funds are:

  • equity funds, that invest primarily in a variety of different kinds of stocks;
  • fixed income funds, that invest primarily in bonds;
  • and asset allocation, or balanced funds, that invest in a mix of both.

There are many different categories of mutual funds to choose from. Some invest only in certain industries, others in certain countries, while still others invest more widely.

A financial advisor can help you choose the right type of mutual funds for your individual situation based on your own risk tolerance, time horizon, and financial goals.

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