What is a mutual fund investment?

Mutual funds are professionally managed portfolios made up of securities like stocks and bonds. Retail investors can buy shares of those funds, in effect receiving the experience and diversification strategies of an institutional investor.

Mutual funds are traded in separate categories that indicate the fund’s objective, the expected return, and the types of securities included in the fund. For example, stock mutual funds are balanced with a composite of different securities, so they are generally less volatile than single-stock securities. Investors can find options suited to their risk tolerance and financial goals. Most employer-provided retirement accounts, like a 401(k), offer a choice of stock and bond mutual funds.

Fund performance is tracked as the change in the fund’s market capitalization (or “cap”)—the number of outstanding shares multiplied by the share price, allowing investors to compare mutual funds the same as they would other securities.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective. Diversification cannot ensure a profit or guarantee against a loss.


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