A mutual fund is an investment vehicle that allows investors to pool dollars together to match a predetermined investment objective as listed in a fund’s prospectus. These pool dollars are invested in a blended variety of stocks, bonds, money market instruments, cash or cash equivalents, or other similar assets.
By investing in a mutual fund, an individual investor receives the following benefits:
- Professional Management: The money manager is responsible for researching, selecting, and monitoring the investment vehicles in the mutual fund.
- Diversification: A diversified portfolio strives to help smooth out the ups and downs of an investment portfolio. Simply stated, "Don’t place all your eggs in one basket."
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Investing in mutual funds involves risk, including possible loss of principal.