Mutual funds

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Mutual funds allow you to invest in a number of different stocks without requiring you to go out and purchase stocks individually. Mutual funds have a fund manager that buys and sells stocks in order to make a profit. When you invest in a mutual fund you are giving the manager permission to invest your money in the best way possible.

The manager cannot do whatever he feels like with your money. Each mutual fund has a prospectus that details exactly how the funds will be invested. If the prospectus says that the fund will invest only in US based company, the manger can't buy shares in foreign companies--even if they look like a great deal.

Investors with lots of money may prefer to pick their own stocks. Smaller time investors would often find the brokerage fees to be great enough to make trying to replicate a mutual fund impossible. Mutual funds are generally reasonably safe investments because they spread the risk over many different stocks. If some of the companies invested in do poorly, there are often enough stocks that do well to make up for the losers.

Mutual funds are a popular investment for Roth IRAs, traditional IRAs, 401k, and 403b accounts. Their investment in multiple underlying stocks helps keep them more stable and generally a safe investment for most people. Investing in mutual funds allows people to maintain a diversified portfolio with minimal administrative cost.