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Mutual funds allow you to invest in a variety of stocks without having to become a market expert. Though mutual fund investing requires research and good decisions just like any other investment, they are managed by a professional financier who will make the majority of the decisions. The only thing the individual investor needs to do is choose the fund and decide how much to put into it.
Mutual funds, which are basically a portfolio of individual stocks and bonds, are by far the most popular investment in the world. Though individual stocks make up more in terms of monetary value, mutual funds are more popular with individual investors, enjoying a larger share of the market.
When a mutual fund is begun, a fund manager is chosen and initial investors are solicited. The manager decides on what stocks, bonds and other instruments to invest in. As the fund matures and shows returns, more investors put up their money and the fund grows. Many funds have been in existence for over 20 years and are still going strong.
There is virtually no end to what a mutual fund can invest into. Some focus on indexes, others focus on a particular industry and others pick a commodity or a family of commodities. This makes it easier for you to pick a fund with which you are comfortable.
The fund earns dividends according to dividends paid by the individual holdings of the fund. With mutual funds, these profits are almost always reinvested back into the fund in the form of more shares. This aspect makes mutual funds a very hands-off investment as long as you occasionally check its performance.
Mutual funds are a great way to begin a portfolio. They are often well hedged against market trends and can take much of the worry of diversification out of investing. For this reason, many amateur investors find mutual funds to be the best choice. However, over time investors need to consider diversifying into a variety of instruments to better hedge their portfolios against changes in the market.
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