Understanding Mutual Funds

You may already have one!

Many people are already familiar with mutual funds because of their 401k or IRA. In fact, when people sign up with Mint.com, one of the first things they usually do is to bring their 401k or IRA account together with the rest of their financial information. They’re that integral to people’s lives.

But you don’t have to limit your mutual funds to your work-based accounts. You can buy shares of mutual funds just like you’d buy shares of an individual company.

So what exactly is a mutual fund? It’s really just a pool of money that’s managed by a fund manager. Companies and individual investors put their money in the fund, and the manager buys and sells stocks with that money in the hopes of reaching a stated goal, such as “high yields at low risk” or “long-term growth.”

Choosing the right fund

Every fund has its own strategy. Some invest only in specific sectors, like health care, while others invest only in blue chip companies. It’s important to find a fund that fits your investment goals.

Once you’ve picked a type of fund, turn to an investment website to see how these companies are rated by companies like Morningstar or S&P. These companies rank funds based on how they’ve done in the pas. Past performance is no guarantee of future success, but it gives you something to go on.

How to invest in mutual funds

If you’ve got a brokerage account, you can buy shares of mutual funds, just like you would buy stock. You can also go straight to the fund’s web page and invest with them directly. Some funds have a minimum investment, but once you’re set up, you can start investing in the fund on a regular (usually monthly, and hopefully automatically) basis. Either way, you can easily pull those various accounts into Mint.com so you can keep track of all of them in one place.

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