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Mutual Fund Investing

A practical and user-friendly primer on successful investing with mutual funds.

History of Mutual Funds

By making the securities markets easy for the average person to access, mutual fund investing is today the cornerstone of the financial wellbeing of over 50 million American households. Prior to World War One, investing in stocks and bonds was the preserve of only the wealthiest families in America but in 1924, the Massachusetts Investment Trust (today's MFS Investment Management) opened its doors to anybody who wished to invest a relatively modest sum of money in the financial markets and offered flexibility, liquidity and professional management in return. Although the concept of pooled funds goes back to ninteenth century Europe, this was the first mutual fund as we know it today.

Mutual Funds Definition

A mutual fund is a collective effort by fund owners to invest a pool of money, or funds, in the markets with the help of professionals. The 1940 Investment Company Act formalized these funds into three basic types--open end, closed end and unit investment trusts but since then, new types of funds have gained favor, namely Exchange Traded Funds (ETFs) and Hedge Funds. The term "mutual fund" however refers to open-end funds almost exclusively and they are the most popular type today. Mutual funds can invest in a wide range of securities, the most common being stocks, bonds and money market instruments but more sophisticated and specialized investments like options and futures have become popular too. For example, this site is built around gold mutual funds which invest in gold-related instruments that fall into all of these categories.  There are similar specialized funds for other precious metals and commodities too--silver, copper, oil, currencies and so on.

Investment Objective

The success of our mutual fund investments will depend largely on the objectives that we set for them as part of a larger investment planning effort and the discipline with which we adhere to those investment objectives. Without a savings plan geared to our unique needs and well-targeted investment objectives, it becomes easy to bounce from one market event to the next with a high chance of getting derailed and losing focus. With definite goals, it becomes easier to see where we are in relation to everything else and to stay the course. A good example of a clear investment objective is planning for college expenses where we know in advance how much we will need and when. It then becomes simpler to decide where we can take more risk and where we can't, thereby making our choice of investments easier and fixing the right place and level for our gold investments if any. It is usually a good idea to draw up an investment policy statement with the help of qualified investment planning counsel from a reputable investment advisory firm. A written investment policy can introduce a sense of committment that would'nt be there otherwise.

For more detailed information on mutual fund investing, you may also wish to explore the following topics:

Types of Mutual Funds
Mutual Fund Categories
Investment Objectives
Investment Strategies
Mutual Fund Performance
Mutual Fund Costs
Mutual Fund Fees
Mutual Fund Management

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