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Step 5 - Mutual Funds

economics

When you purchase shares of a mutual fund, you are essentially paying someone else to invest in potentially over 100 different stocks.

 

Funds are classified according to their risk level, as follows:

Value funds - Invest in companies with potential for growth in the near future.

Growth funds - Invest in companies with a profitable history.

Blend funds - Somewhere inbetween growth and value.

 

Funds are also classified as investing in primarily small, mid-size, or large companies.

 

Think of each fund as being classified according to its risk level and size of companies investing in, as illustrated by the following:

mutual fund

Small value funds are the most risky, while large growth funds are the safest. Remember that the risk level is about the potential to either lose or gain money!

 

Note that you are unable to purchase mutual funds on Investopedia. However, you can purchase ETF's, which are like mutual funds except that they are traded on the stock exchange. There are several sites that you can visit when searching for an ETF:

The Street Top ETF's

U.S. News Top ETF's

Yahoo ETF Categories

Yahoo Top ETF's

CNN ETF Finder

Morningstar (must create a free account to use the site)

 

In addition to finding a mutual fund to invest in, you must also write down the front-end load (sales fee) for purchasing the stock, the price per share (with funds it is referred to as the NAV or Net Asset Value), and the top 10 holding (stocks the fund invests in) for the mutual fund.