by Andrea Nostramo

Created on: August 18, 2008   Last Updated: August 20, 2008

Are Mutual Funds Right for You?

Presently, we are living in precarious financial times, brought on by the usual culprits, which amounts to nothing more or less than foolish investing. The main culprit? Sub-prime lending in the real estate market, but you can be sure there are others. The question we ask ourselves is: why would we want to invest our assets into a pool of money which buys and sells stock when most of those investments haven't done well in the last twelve months?

Investing in equities over the last hundred years has done better than most other investments. Since most of the industrialized countries of the world propagate their affluence into their respective societies through corporations in which goods and services are bought and sold, everything must stem from that particular entity. If it were to fail, everything else would fail along with it. If corporations couldn't borrow (or lend or produce or employ), all other investments would also fall by the wayside: commodities would lose their luster; real estate would be hard-pressed to have any positive momentum over time. All stems from the corporation and its contributions to society in their respective places of origin. Since investing in equities has a proven track record, one might conclude that it's a good and viable way for your money to grow over time. But why mutual funds?

When you place your money in a good mutual fund, you allow people to take your money and invest it for you. Since they have the time and expertise that you might not, it is more likely to yield positive results. The key is to spread your investment out over a long period of time. You should invest the same amount every month, which is based on individual income and savings. Doing this in monthly or quarterly increments will allow you to buy more shares if prices are down and less shares if prices are up, which is just what you want to do (buy low, sell high). This is called dollar cost averaging and it has been my observation that it is very successful. It is also important to keep an eye on mutual fund costs as well as track records because they vary widely. Some will charge a fee to get in (and out), which is called a load. There are many no-load mutual funds that do just as well and, all things being equal, I would opt for those.

The bottom line? Mutual funds are the best choice, especially if you're not as knowledgeable as you'd like to be on the subject of stocks. Only you can know how much money to invest, based on income and savings. But, if you buy low and sell high, always invest the same amount, and keep an eye past successes, you shouldn't be disappointed over the long term.

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