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  • This is the Mutual Fund factory, where all the world's mutual funds are produced.

  • Fund elves wrap stardust, lemondrops and a nickel in a unicorn bladder, which is then

  • delivered via dragon-sled to brokerage firms, who sell them to customers.

  • The customer buries the mutual fund in their backyard, and after 30 or 40 years, a money

  • tree starts blossoming, just in time for retirement.

  • Babe, that's not remotely true.

  • I know, but we have to get people excited about mutual funds somehow.

  • They're an important option in saving for retirement and most people don't even know

  • what they are!

  • Even people who own them

  • like in their 401(k)s!

  • Wait

  • 401(k)s are mutual funds?

  • No, not exactly.

  • Let's start at the beginning.

  • A mutual fund is kinda like... a bowl of investment stew.

  • Thousands--or even millions--of investors pool their money to buy a variety of investments

  • (primarily stocks, bonds and currencies) which are blended together and then divided amongst

  • the participants.

  • And just like a restaurant serves a lot of different dishes, mutual funds come in a lot

  • of different flavors

  • Some funds focus on a specific sector of the economy, like Technology, Retail or Agriculture.

  • Others focus on specific areas of the world - “Emerging Marketsrefers to developing

  • nations.

  • And some focus on the size of the companies - from Large-Cap to Micro-Cap.

  • And they can get a lot more customized than that: The Pax World Global Women's Equality

  • Fund invests in companies that advance the cause of gender equality.

  • Or, for something completely different, the Vice Fund focuses on tobacco, alcohol, gaming,

  • and weapons companies.

  • Mutual fund shares are usually inexpensive, and you get the advantage of diversification

  • without having to buy hundreds or thousands of shares yourself.

  • BUT there are costs.

  • Every mutual fund has an upkeep fee called an ANNUAL EXPENSE RATIO, which ranges from

  • around 0.1% to 2% of the value per year.

  • Some funds also charge an extra fee called a LOAD when you buy or sell your shares, usually

  • between 1% and 5.75% of the sale price.

  • You can think of these fees as payment to the chef who whipped up your dinner.

  • Waitwho are these chefs anyway?

  • And how are they deciding what ingredients to use?

  • Well, that depends on whether your mutual fund is ACTIVELY or PASSIVELY managed.

  • Active funds are managed by a team of analysts and traders.

  • They try to out-perform the market by carefully watching economic indicators and picking which

  • investments to hold and which to sell.

  • Kinda like a celebrity chef who's always improvising and changing her recipes based

  • on what's trendy or in season.

  • As you can imagine, the fees on actively managed funds tend to be higher.

  • Passive fund managers are more like chefs who stick to the cookbook.

  • Their goal is to match benchmarks, not beat them.

  • For example, an “S&P 500 Index Fundtries to mirror the modest but steady growth seen

  • in the index of 500 of the biggest companies.

  • Passive funds are popular among investors who believe it's a losing game to try to

  • beat the market.”

  • Because there's less analysis and fewer trades, passive funds are cheaper to own.

  • Mutual funds are an amazing creation.

  • They allow ordinary people to invest like huge institutions--thousands of holdings,

  • diversification--while being easy to use and letting you express your personal tastes and

  • principles.

  • But where do you start?

  • If you don't have any mutual fund investments yet, you might begin by opening an investment

  • account with a mutual fund company.

  • Their advisors will help you choose funds that are a good fit for your situation.

  • Investors who are a bit savvier and want a more modern approach are starting to useRobo-Advisors

  • to invest in mutual funds.

  • Basically, you answer a few questions online and the service automatically constructs a

  • personalized portfolio of funds for you and handles all the trades and holdings.

  • Plus their investment minimums are pretty low, sometimes just $100!

  • And if you're invested in a 401(k) plan through your work, you already own mutual

  • funds!

  • And you're paying fees for an advisor, so don't be afraid to contact them and find

  • out which funds you own and what your options are.

  • I remember the first time I went to a sushi restaurant.

  • I didn't recognize a lot of the ingredients on the menu, and it was a little intimidating.

  • But it didn't take me long to learn what I liked and I'm so glad I did.

  • Like sushi, mutual funds may not be for everyone.

  • But everyone should be planning for retirement, and mutual funds are popular with investors

  • of every level for good reason.

  • And that's our two cents!

This is the Mutual Fund factory, where all the world's mutual funds are produced.

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What the Heck Is a Mutual Fund?

  • 59 2
    Mackenzie   に公開 2019 年 11 月 11 日
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