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Mutual funds have always been a great place to invest money over a long period of time, if you pick one out with low fees and a solid track record of making a very decent rate of return. If you've never invested before, it's never too soon to start! You can invest for most commonly retirement, for college, or for some other major purchase down the road. Here are some answers to questions that people who are investing in mutual funds for the first time commonly ask.

How do Mutual Fund Companies Make Their Money? Each mutual fund has what's called an expense ratio, it's usually very low, somewhere around 00.15%, meaning that each year someone owns the fund, they take off that percentage of their balance. I have my Roth IRA invested in Vangaurd's 2050 Target Retirement Fund, which has 117,780,000 in assets that has an expense ratio of 0.21%. That means Vanguard makes $373,338 each year off this fund. Off Vanguard's biggest fund, their S&P 500 Index fund, they make over $200 million a year on it! The expense ratios are very close to zero, but since they have so much money invested, they can make very decent money from it none-the-less.

What are Capital Gains Taxes? A capital gains tax is a tax which the federal government charges you based on the amount of money you made on it. Let's say you invested $100 into a stock that went up to $150.00. You earned $50 from the investment, so that was your capital gain. In the United States, the capital gains tax rate is 15%, so you would have to pay $7.50 in taxes on that investment. Typically you file them as part of your normal income tax. At the end of the year, you'll need to figure out the net amount of money you made from all of your investments, and send 15% of that in as part of your tax-filing. Remember that any capital loses that you had (investments that lost money) can be subtracted from your capital gains.

How Do I Balance My Portfolio? A lot of people have money invested in an IRA, maybe a 401k plan, and maybe even somewhere else. It's a hard task to balance one's mutual funds when they're invested in different places. You'll want to make sure that all of your investments combined aren't too conservative or too aggressive for your place in life. If you're a beginning investor, this is probably not something you'll want to try to tackle alone.

Consider visiting a good investment person with the heart of a teacher. Be very aware that these people are few and far between. Most financial advisors will try to sell you bad financial products which make sense for almost no one, such as variable annuities and investments in life-insurance policies. Make sure you visit a financial advisor that is fee-only and does not sell financial products.

If you have any more questions, feel free to ask in the comments below!

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