The Retirement Corporation of America

Introducing Mutual Funds

MUTUAL FUNDS SIMPLY pool your money with that of thousands of other investors to buy almost anything: stocks, bonds, real estate, and more in the U.S. and around the world. The typical mutual fund holds $1 billion or more (sometimes much more) in assets invested in the fund by people just like you.

All you have to do is pick the fund. Later on in this lesson, we'll show you how to go about picking the mutual funds that make the most sense for you and your financial circumstances. Once you have picked the fund, the fund manager, a skilled investment professional, decides where to invest the fund's money.

There's no question that mutual funds have become the investment vehicle of choice for a great many people very much like you. Just to show that you have lots of company when you invest in mutual funds:

•  More than 90 million Americans own mutual fund shares.

•  There are about 8,000 mutual funds in the U.S. today, compared with fewer than 400 in 1975.

•  Americans have more than $7 trillion invested in mutual funds.

Why You Should Invest

The first question you are bound to ask is: Why invest your money at all? Why take any chances with your money? You are putting your money at risk when you invest. Why not leave it in your bank account where federal deposit insurance will protect you against loss?

The answer is simple: Nothing ventured, nothing gained.

If you don't take some risks with your money, it won't grow at all. If you don't take some risks, none of your financial hopes and dreams will ever come true.

You could put your money into a bank account earning 3 percent interest. It will be guaranteed against loss, but all you'll ever get back will be the interest you earn. The potential for capital gains is zero.

Or you could invest your money in a mix of mutual funds. There's no guarantee against loss, but there is the potential for both capital gains and income.

•  $2,500 invested for 20 years at 3 percent (in a bank account) will return $4,515.

•  $2,500 invested for 20 years at 8 percent (a reasonable return on a mix of stock and bond mutual funds) will return over $11,650.

That's a big difference—one well worth taking some risks to gain.

There's more than one way to earn money on your investments.

You can earn:

•  Income from the interest on a bank account or a bond, or income from the dividends on stock.

•  Capital gains when the value of your investment gains in price. Add income and capital gains and you get total return. The greater your total return, the faster your net worth grows. The faster your net worth grows, the closer you get to mastering your financial future.