What is a mutual fund? Is it a better investment than the stock market?

A mutual fund is an investment in the stock market but, it is an investment in several hundred stocks rather than just one stock. So, for instance, let's say you had $5,000 to invest. If you found one company that you really liked, you could invest all $5,000 in that stock.

If the stock price was $50.00 per share, you would purchase 50 shares. If this stock's earnings went down or people thought the earnings might go down and the stock plunged to $30.00 per share, your stock would now be worth only $3,000 if you sold it. On the flip side, if the stock went up to $70.00 per share, your stock would now be worth $7,000.So, if you invest in individual stocks, you must be very comfortable with the company and willing to loose any money you invest.

I only recommend investing in individual stocks if you have 2 or 3 hours a week to dedicated to researching a company, calling it's officers and proceeding just as you would, if you were planning to buy the entire company. For this type of investing, read "Buffettology" by Warren Buffett's daughter amzn.to/bu91PT and "One Up on Wall Street" by Peter Lynch. If you invest in a mutual fund, you want to look at the track record of performance.

Although a mutual fund can also go up and down, it is less volatile, because the mutual fund owns many stocks. If you invested $5,000 in a mutual fund, that money might be evenly split over 300 stocks, so if one stock plunged or rose dramatically, it wouldn't really effect you very much. I good return for a mutual fund would be 12% and you do want to look at the history of performance.

I personally like the Nasdaq ticker QQQQ which simply tracks the entire Nasdaq collection of stocks. This is basically a bet on the American economy. Hope this helps!

James Shepherd.

A Mutual Fund is basically a collection of investments. The securities in the MF can be invested in the stock market or not. The basic types of MFs are stock, bond, money market.

A mutual fund is for the primary benefit of the funds management and brokers. Rarely do any mutual funds outperform the stock market for a few years in a row. If you want to invest in the stock markets with the advantages of a money manager look at closed-end funds which are primarily for the benefit of long term share holders.

If you do not care for management at all, you can spread your risks owning indexes. Mutual funds: an introduction to the core concepts.

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