How to invest Mid-Level Risk With Mutual Funds

Much ado about mutual funds.

Mutual funds are a great investment option if you’re a beginning

investor, if you don’t have a lot to invest, or if you want

diversification in your portfolio. To see the value mutual funds can

deliver, take a look at Angie’s story:

Angie

is a senior nursing major. She understands the basics of investing, and

wants to protect her interests by spreading her money equally across the risk catagories (which we originally detailed in the first installment

of this series). This is a smart move, because it will allow Angie to balance out her risk and her potential gains.

Angie’s

strategy is commonly called diversification, and here’s why it’s

important. Consider what could happen if Angie invests all her money in

one stock. Then, her entire investment portfolio will live or die based

on the performance of one company. If that company stumbles or fails,

then she could lose everything. Talk about putting all your eggs in one

basket!

Mutual funds: the easy way to diversify.

One of the easiest ways to diversify is to invest in mutual funds.

Mutual funds reduce your risk of losing money by investing in a variety

of investments. Fund managers keep a close eye on all the investments

within the fund for you, and make trades to keep the fund as

financially healthy as possible.

Mutual

fund companies have several funds to choose from. Each is composed of a

different collection of investments, and each has its own investment

focus and projections for risk and return. The fund “mix” shows the

distribution of investments within the fund鈥攚hich could include

everything from money market funds, bonds and stocks. This

information鈥攁nd more鈥攃an all be found in a fund’s prospectus (a

detailed report on the fund) that you can request to see at any time.

And remember, some mutual

funds will be higher risk than others, and no mutual fund is a sure

thing. That’s why it’s so important to research the funds available and

find the right one for you. But the fact that mutual funds are

diversified groups of investments reduces your risk while allowing for

a greater potential reward than many low-risk investments.by: Wellsfargo