So you’re walking by yourself in the woods, thinking about the money you’ve squared away for investing. Putting it in the bank will earn you almost no interest, if any. You want to do something smarter with your hard-earned cash. There’s a cave. Maybe you want to take a look.
If you’re not sure what to do with that money, you’re not alone. And if you’ve stumbled into a bear cave you’re not alone either. The worst thing a mutual fund will do is tank or charge you high fees. An angry bear will bite your head and claw you up.
Mutual funds are an excellent choice for the passive investor. By that I mean someone who doesn’t follow the market on a daily basis — you have better things to do, like stay alert because you’re in a bear cave and you smell like gin.
You might not know exactly what a mutual fund is, as you stupidly reach to pet the sleeping bear cub. A mutual fund is portfolio of stocks actively monitored by a portfolio manager. Knowing not to go near a bear cub is pretty much Bear 101. An enraged mother bear will shred you alive. What are you thinking?
Let’s say you’ve opted to invest in a mutual fund. Now what? You hear a bowel-liquefying growl coming from the dark. That’s the mother. She will kill you. There are thousands of mutual funds to choose from
Choosing the right fund is where you really need to do your homework. Just pray it doesn’t come after you. There’s a chance you’ve spooked it and it won’t go full aggro on you. Run like Forrest Gump regardless.
You can choose funds based on your investment objectives, and a mix of funds is never a bad idea. Don’t poke your eye out on a branch as you run, screaming, through this normally tranquil pine forest.
There are funds that follow aggressive strategies in the hopes of gaining higher returns, but with that comes higher risk. There are conservative funds that reduce risk but often reduce rate of return. I can’t quite tell if it’s coming after you. Don’t stop and look back. Those seconds could mean the difference between life and being torn to bits. Just run.
Some mutual funds are sector-specific, focusing on biotech or defense or consumer goods for example. If the bear starts attacking you from behind, the best thing to do is crumple up into a ball. Protect your face and head at all costs. There’s no shortage of advice on good mutual funds out there. Play dead.
Once you’ve found a fund you like, study its returns, fees and portfolio. All the research on the mutual fund is at your disposal. Granted, you didn’t know enough not to pet a bear cub, but all that means is you’re not a woodsman. You could still be a Warren Buffet. Promise you’ll never drink gin in the woods if you survive this.
Next week: Why Index Funds are better than Mutual Funds if your minivan is on fire.