Mutual Funds made Easy

Hola bellas!  If you want to invest dinero to make dinero, you’ll want your investment to be diversified and low cost.  Mutual funds are a good option because for the most part, they’re both.  Mutual funds work by pooling money from many investors and invest it across different assets, such as stocks and bonds.

Here are the most popular types of mutual funds:

• Stock funds- made up of stocks.  Stock funds are the riskiest but also have the greatest potential returns.

• Bond funds- made up of bonds.  They are lower risk than stock funds, but have a lower potential return.

• Balanced funds- include a mix of bonds, stocks, and other securities.

• Money market fund- made up of super safe assets . They are the least risky, but also have the lowest potential return.

Mutual funds include a portfolio of many companies, so if one of those companies losses a lot of value, your mutual fund, as a whole, will not be impacted significantly (compared to buying individual stocks).  That’s a great benefit!  You can think of mutual funds like the big variety of artists in your Spotify or Apple Music.  If you have tons of artist on your music player and one of the artists gets deleted for some reason, it won’t be a huge loss if you have tons of other artists to listen to.

Mutual fund benefits include:

• It is fairly inexpensive to invest in mutual funds. There are brokers that offer $0 minimums to start investing, and have low trade commissions.

• They are professionally managed. Fund managers make decisions on buying and selling the securities in the mutual funds, based on the mutual fund goals (ex: growth or lower risk).

• They’re easy to buy and sell. There are lots of online brokers that offer mutual funds.

• They’re a diversified investment option (your portfolio includes many companies versus buying individual stocks).

• Historically, mutual funds have gone up in value over time, which means you can make some $$$.

Ok, so you have no debt, some savings, and you’re ready to investing in mutual funds.  You can buy mutual funds from various brokers online.  Before you buy, make sure to buy mutual funds with reasonable fees and a good return track record.  Mutual funds that are passively managed are more cost effective than those that are actively managed.  A lot of times, buying a more expensive actively managed mutual fund is not worth it because the returns are similar to those that are passively managed.  Passively managed mutual funds include index funds and exchange-traded funds.

Once you decide on which mutual funds to buy, make sure to go back and check your investment performance once in a while.  I think in the long-run, you will be glad that you starting investing at an early age and making your money trabajar (work) for you!  It’s not about working hard, but about working smart ?.

Sources:

https://www.nerdwallet.com/blog/investing/mutual-funds-work/

https://www.nerdwallet.com/blog/investing/how-to-invest-in-mutual-funds/

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