Building a portfolio is an excellent idea for everyone, especially with interest rates at historically low rates. While a simple savings account at a bank is certainly low risk, you will earn very little in interest, and it hardly helps you plan for retirement. Investing in mutual funds can be a good option for investors, so consider the following information.
A mutual fund is simply an investment program that includes many different shareholders or investors. The fund is professionally managed and the money invested is diversified or spread among different holdings such as bonds, stocks and other securities. One of the biggest advantages of mutual funds is that the fund has its own professional manager. This manager does all of the investment work for you, and because the fund is spread or diversified, the risk is much less than putting all of your money into one single investment.
Diversity is key for mutual funds, and each fund will include a variety of holdings in about 10 different industry sectors. For example, if you purchase a China fund, it will include investments in many different companies in China or Hong Kong. These companies will be in several industries. Usually, energy and technology are the top ones followed by industrials and banking. You can also diversify even further and invest in a wider Asia fund which will have the same types of companies and holdings, but spread among other countries in addition to China, such as Taiwan, Philippines and Indonesia.
Mutual funds in the United States are available in four different types. Open-ended mutual funds are the most common and provide a good deal of flexibility for investors. These funds are always "open" meaning that there is no limit as to how many shares an investor can buy and how many shares can be sold in general. Another advantage is that the fund has to buy back your shares at any time, so it is easy to liquefy your assets.
On the flip side, there also are closed-end funds. These funds allow only a specific number of shares to be sold, and an investor has to purchase or sell them directly in the market. The fund does not buy back your shares, so you have to sell them to another investor. While there are more than 7,000 open-end mutual funds in the United States, there are fewer than 650 closed-end funds.
Unit investment trusts are another type of mutual fund and unlike other mutual funds, these have a set expiration date. You can certainly cash out prior to this date, but at the end of the set time, your investment ends. The fourth type of fund is a newer addition to the investment world - the exchange-traded fund or ETF. An ETF is similar to a regular open-ended mutual fund in that it is diversified and you can sell it at any time. However, the value of a mutual fund is determined each day at the end of trading. The ETF works more like a stock, and the value goes up and down throughout the trading day. There are also some tax advantages to ETFs, as you tend to pay lower capital gains on these funds.
A mutual fund is simply an investment program that includes many different shareholders or investors. The fund is professionally managed and the money invested is diversified or spread among different holdings such as bonds, stocks and other securities. One of the biggest advantages of mutual funds is that the fund has its own professional manager. This manager does all of the investment work for you, and because the fund is spread or diversified, the risk is much less than putting all of your money into one single investment.
Diversity is key for mutual funds, and each fund will include a variety of holdings in about 10 different industry sectors. For example, if you purchase a China fund, it will include investments in many different companies in China or Hong Kong. These companies will be in several industries. Usually, energy and technology are the top ones followed by industrials and banking. You can also diversify even further and invest in a wider Asia fund which will have the same types of companies and holdings, but spread among other countries in addition to China, such as Taiwan, Philippines and Indonesia.
Mutual funds in the United States are available in four different types. Open-ended mutual funds are the most common and provide a good deal of flexibility for investors. These funds are always "open" meaning that there is no limit as to how many shares an investor can buy and how many shares can be sold in general. Another advantage is that the fund has to buy back your shares at any time, so it is easy to liquefy your assets.
On the flip side, there also are closed-end funds. These funds allow only a specific number of shares to be sold, and an investor has to purchase or sell them directly in the market. The fund does not buy back your shares, so you have to sell them to another investor. While there are more than 7,000 open-end mutual funds in the United States, there are fewer than 650 closed-end funds.
Unit investment trusts are another type of mutual fund and unlike other mutual funds, these have a set expiration date. You can certainly cash out prior to this date, but at the end of the set time, your investment ends. The fourth type of fund is a newer addition to the investment world - the exchange-traded fund or ETF. An ETF is similar to a regular open-ended mutual fund in that it is diversified and you can sell it at any time. However, the value of a mutual fund is determined each day at the end of trading. The ETF works more like a stock, and the value goes up and down throughout the trading day. There are also some tax advantages to ETFs, as you tend to pay lower capital gains on these funds.
About the Author:
Cleveland Jernigan loves blogging about investments. For further details about China mutual funds or to find out more about Energy investment funds, please visit these fund websites.
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