January 6, 2014 Author: 301invest

People are always looking for a way to invest their money wisely. There’s any number of choices to have your hard earned money work for you, but for too many, investing is a vast hedge-maze filled with unknown pitfalls, and because of these possible land mines, many people are simply scared away from investing their dollars and instead sock their paychecks in low interest rate savings accounts where it languishes while only earning pennies on the dollar. This is, of course, a huge mistake. There are too many concerns and plans in life from vacations-to-retirement-to-providing for your children’s education.

So where can a reluctant investor turn to start building their portfolio?

The simplest answer is mutual fund investment.

First off, let’s explain what a mutual fund is. The easiest way to think of a mutual fund is as a giant pool of money from thousands of investors. Each mutual fund is made up of stocks, bonds, real estate, securities, and commodities. As the investments in the mutual fund grow and expand, each individual investor shares equally in that growth.

There are many kinds of mutual funds, some with extremely low risks such as bond funds-to-high-risk-but-high-reward funds which focus on emerging stocks, technology, and energy. More or less, there is a mutual fund tailor made for each investor and their comfortably level.

Now you’re probably asking, what are the best mutual funds to invest in? This, of course, is far from a simple answer, and a ever changing one. But let’s take a look at the various kinds of mutual funds and let you decide for yourself what the best direction for you to take.

Equity Fund

An equity fund is a mutual fund which invests almost entirely in stocks and securities. There is generally a higher risk involved with an equity fund depending on the stocks and securities it is invested in, but there’s also a far greater chance of larger reward

Fixed Income Funds

Fixed Income Funds largely focus on bonds and typically pay out a returned on a fixed and regular schedule. Along with bonds, most fixed income funds also invest in CDs, ETFs, and general money market funds. Fixed income funds are ideal for the beginning or reluctant investor.

Money Market Funds

Money market funds invest in short term debt securities such as US treasury bills. Money market funds are typically considered the safest mutual fund investment largely because they are considered as safe as bank deposits. Of course, the overall financial yield is also far lower.

The mutual fund market is very much robust and long-term one, but like all investments, there are a fair share of pitfalls. There is the chance that your fund will not grow and remain stagnant, and of course there is the issues of taxes, which many investors are unaware of. With a mutual fund, the investors pays both capital gains and dividend taxes. Even if a fund has declined in value over the years.

But all risks aside, when investing—whether you’re a seasoned investor or new to the process—the mutual fund should be the cornerstone of your investment portfolio.