The easiest way to start investing in stocks, and the most common, is to buy a mutual fund. While not a pure investment, a mutual fund is a collection of stocks.
Most mutual funds come in a variety of flavors, but there are two main types, index funds and actively-managed funds.
Stocks are a widely held investment. Investors are most likely to buy a stock, or other type of investment in their savings account when they want to see it grow over time. The more they have in their savings account, the higher their chances of seeing the gain.
With mutual funds, you can invest in stocks just like you would invest in bonds. If you have a certain amount in a mutual fund, then the fund’s owner wants you to invest in the stocks in that fund. As the fund’s owner invests in stocks in the fund, the stock prices in the fund rise. As the stock prices rise, the interest paid on your investment increases, and you can buy more stock.
How mutual funds work
You can buy shares in a mutual fund through a bank, brokerage firm, or brokerage firm like Merrill Lynch or Fidelity. The fund owner is called an investor, and the fund pays him or her an annual fee. The fund owner is the main beneficiary of your investment.
For example, Vanguard Group, the world’s biggest mutual fund company, has $4.5 trillion in assets under management. Vanguard manages nearly $15 billion in shares, but more than $4.5 trillion of that is in mutual funds. Because of the fees the fund company charges, Vanguard takes a big hit every time it buys and sells shares, plus there’s the interest on your investment. Mutual funds allow you to buy the largest percentage of a particular type of stock, such as the S&P 500 or Dow Jones industrial average. That way, you have the best interest of the entire company in mind. You can buy shares in the fund at any time, even when the price of the fund is not very high. You can sell shares at any time, even when the price of the fund is very high, but there’s still some extra money for the fund. When you invest in a mutual fund, you are basically renting the shares from the fund company. You pay the fee of the fund company, plus some interest. The fee is just the interest you pay on your investment, minus the fees the fund company charges. If you bought the same shares for the same price before the market dipped and sold them at the higher price, you would have earned around 8% a year, but by investing in a fund, you are only charged the interest rate of the fund company.
In fact, there are plenty of funds with interest rates as low as zero per year. Why not just get in on that?
Many people are under the impression that mutual funds are investment vehicles that cost you a huge amount of money. But you need to be very careful about trusting your money to a mutual fund manager. Some managers are crooked, and their schemes can be very complex. They do not pay you, or even share what they charge you for fees. If you invest in an index fund, you will not see any fees. Instead of investing in an index fund, you should just invest in a portfolio of stocks in a stock index fund. Investing in index funds lets you invest in many stocks that share a common market, even if they do not all trade in the same market.