How to Invest in Mutual Funds for Beginners

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Investing in mutual funds allows beginners to tap into a large group of companies made up of various types of investments such as stocks, property and bonds for purposes of investing. Mutual funds are managed by trading professionals who focus on helping traders of all skill levels get the best possible return on their monetary investment. The manager in charge of the mutual fund is responsible for investing the money which they have gathered from a collective group of investors into well-performing investment vehicles.

  • Plan to invest at least a couple hundred dollars. Invest money which you have put aside for investment purposes. Know your money will be invested in more than one type of investment, so you will have less risk if one sector of the market does not perform well.

  • Do your research. Base your trading decisions on your level of risk tolerance. Focus on three keys areas when conducting research: the largest amount of money a mutual fund has lost in a quarter; the beta which tracks the way in which a stock moves in comparison with the Standard and Poor's 500 (S&P 500); and the standard deviation which focuses on the return on investment a fund is achieving.

  • Be aware of possible tax consequences. Understand mutual fund accounts which contain investments which have done well and been sold by fund managers are subject to taxes which will eat into your profits. Do not be shocked if your expected returns are lower because taxes may have been taken out of your mutual fund portfolio.

  • Invest in funds which have a proven track record. Know mutual funds which do well on a short-term basis may not perform well over the course of many years. Search for mutual fund performers which have a history of performing well on a long-term basis.

  • Keep a long-term focus. Come to grips with the fact that many mutual funds may have a poorly performing year. Do not sell your mutual fund if it has a bad year; it can rebound in the future. Give your fund a chance to come back, and only replace it with another fund if it continues to do poorly over the next year.

Tips & Warnings

  • Investing is risky, and you should only trade money which you can afford to lose.
  • These words are not meant to substitute for mutual fund investment advice, and a mutual fund manager should be contacted regarding any investment decisions.

References

  • Photo Credit stock market analysis screenshot image by .shock from Fotolia.com
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