Mutual funds allow investors to diversify with very little effort. When you buy mutual fund shares, you invest in multiple companies selected by the fund manager. Buying shares in the same companies separately through a traditional or an online broker would require extra work and usually much higher commissions. In addition, the companies in the fund portfolio are screened and selected by the fund manager and his or her research staff.
It would be however a mistake to assume that investing in an actively-managed mutual fund is a sure-fire way to make a fortune. It is a fact that in the long run very few actively-managed mutual funds beat market averages. For this reason many investors put at least a portion of their money into index mutual funds from Vanguard and other mutual fund companies. The index funds are usually no-load, meaning that they don't require you to pay extra fees when buying or selling their shares. In addition, they usually offer expense ratios well under 1%25, which saves you money compared to an actively-managed mutual fund.
The quiz on this page is not intended to make you a mutual fund guru, but you may find it helpful in learning the basics of mutual fund investing.
Note: To obtain financial advice, please contact a qualified professional.
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