You have probably heard the words before, maybe in a passing coffee shop, or while at work, or even from your parents when they give you advise on what to do with your money, but what is a Mutual Fund really? Is it like Mutual Friends? No, not really sorry Facebook will not help you much here. The definition of a Mutual Fund is “an investment program funded by shareholders that trades in diversified holdings and is professionally managed”, I don’t know about you but reading that makes me go Program? Diversified? Trades? WHAT IS THIS! So let’s take a step back and talk about dating.
Yes, dating. Something we have all done either a lot or a little of, now I want you to think about all the qualities that you look for in someone you date; determination, smart, athletic, creative, etc.… You would have all these diverse qualities that you look for and not everyone will have the same diversification that you have dated, but you still may have dated them. Now, these qualities that these people had were not given to them, they were taught, almost professionally managed to have these qualities that are built inside of them. Finally, when you look to date someone, especially for the long term, you want to feel safe and reassured that they are not going anywhere, yes they will make you happy and sad but you never want to be burned by them or go crazy high with them, over time you want it to be steady.
So, what is a mutual fund? It is like that long term boyfriend or girlfriend that you want as a lifetime partner that carries all the diversified qualities that you look for. A mutual fund will often be mixed with other funds, or stocks or bonds, offering you as an investor, a way to buy into a very diversified portfolio for a lower cost. Sure, it will never go crazy high on you but it will also usually never crash and burn on you just like someone that you want to date for a long time. The only downside is that there are often higher fee’s associated with being in a mutual fund, but hey what relationship isn’t costly, and you get to choose who you want to invest with just like who you want to date. So here is to finding the perfect match for your investment!