In this article, I am going to introduce mutual funds and why they are perceived by many people to be much better than stocks.

I sometimes tell investors that they should not be afraid to own individual stocks if they are willing to take the time to learn enough about the individual company or stock to make a rational businessman’s decision. And don’t forget about valuation. Sometimes it is just a lot easier to pick fabulous mutual funds, and let professional money managers make the individual stock selections for you. If you go this route, and for many it is the way to go, than I suggest your big decisions are what sectors you want to invest in, and what are your asset allocations. Sounds like fancy language, but really it is not. It’s just plain common sense investing. What is your aversion to risk? Do you want to embrace investment risk, or do you seek to encounter as little risk as possible.

Mutual Funds can also possess much more risk than you thought you were encountering. Here’s what I think you should consider doing. First unless you are a real expert, consider buying Index Funds, as opposed to investing in funds that carry a high load, or sales charge associated with them. If you pay a big commission, you simply have less dollars in the investment to work with. Studies show that for most mutual funds, the commission or load simply is not worth it. Don’t let a good or even a great salesman talk you into a load fund, unless you have checked for yourself, that the returns over several different periods of time have been outstanding.

Equity funds invest your money in common stocks with the objective of earning higher returns or profits for investors. Risk is higher here, as the price or value of shares can fluctuate significantly. The fourth category is balanced funds, which invest in a combination of money market securities, bonds, and stocks. The objective is to provide both moderate growth and dividend income at a moderate level of risk. No guide to investing in mutual funds is complete without considering the cost of investing. You can invest through a middleman and pay as much as 5% or more in sales charges called „loads“ or you can invest directly in no-load funds and avoid them. While all mutual funds charge for yearly expenses, you can pay 2% a year or more, or less than % in well chosen no-load funds.

It never hurts to do a little homework, have reasonable expectations, pay a low load, or even used index funds, have a long term outlook, and you should be okay. More than that, you should be pleased with the wealth creation process that you have put together for yourself. If you insist on taking all kinds of risk, than you should do it with only about 5% of your investable assets. Most stock analyst will agree that it is a sound financial idea to diversify your stock portfolio with some type of money market investment, such as the Principal Money Market Fund. However, few will make that recommendation to you because they do not study or analyze this type of security investment.

Commodities operate in a little different fashion than stocks. Buying a commodity means you actually own something, or in the future you will own something, whether it be so many bushels of corn, pounds of gold, or barrels of oil. You are dealing with real goods, not the performance of a company. Typically, you are buying a contract for a future buy or sell of these goods. And it is a contract you never expect to complete.

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