Mutual Funds

A variation of stocks are mutual funds, which pool the money of investors in order to buy a number of different stocks. They are to stocks what Omaha is to Texas Hold-em, except you get a lot more stocks instead of just two more cards, giving you more of a chance to hit the flop. By investing in a mutual fund, you own a small percentage of every company that is in the mutual fund. Obviously, mutual funds are good ways to instantly diversify your portfolio. However, there are a seemingly overwhelming number to choose from, so what should you look for in a mutual fund? First and foremost, you should be aware of the type of stock they invest in, as well as the specific stocks that make up the fund. The former will often be apparent from the name of the fund, such as Fidelity Blue Chip Growth or American Century Small Cap Value. The first fund invests primarily in "blue chips", established companies with a large market capitalization, or the total value of all outstanding shares of stock, still with potential for further growth. The second invests in stocks of small companies with low market capitalization, but perceived to be trading at a good value over their true worth. A little digging through what is called the fund’s prospectus, or official document disclosing its intentions and other information, will unearth a wealth of information including what individual stocks make it up. Checking this will assure the goal of the fund is in line with your investment strategy.