Mutual Funds - The Fund-a-mental Truth About Mutual Funds

Millions of Americans own trillions of dollars of shares in thousands of mutual funds. Impressed? If not, maybe the exact numbers will sway you. Nearly 95 million individuals have $7 trillion invested in roughly 10,000 U.S. mutual funds (Investment Company Institute, 2002). Either these people are all incredibly stupid about their money or they're really on to something. The way investments performed during the economic slump of the past few years, it wouldn't be such a stretch to stick with "incredibly stupid." But now as things start to turn around and positive returns have shown up on some quarterly investment statements, maybe "on to something" is closer to the truth. We'll leave it up to you to decide.

As the name implies, a mutual fund is simply a way for people to invest together, through an investment company that allows investors, large and small, to put their money into a large pool (not the chlorinated kind, though you may have the feeling on occasion of jumping off a diving board). This company then invests in a portfolio or "large bunch" of stocks, bonds or other assets more efficiently and cost effectively. Generally, the larger the fund, the greater its cost advantage in making purchases and sales for the mutual fund. The portfolio is professionally managed by people who do this sort of thing for a living.

Assuming you don't want to do this sort of thing for a living--but you want to join the gang of mutual fund investors--we've created this topic especially for you! It's full of details on everything from what a mutual fund really is to which parts of the prospectus are especially important to prospective investors. Next time someone talks about up-front fees at a party, you won't think they're referring to the cover charge.