Читать книгу Mutual Funds For Dummies - Eric Tyson - Страница 13

If you already understand stocks and bonds, their risks and potential returns, and the benefits of diversification, terrific. You can skip/breeze through some of this chapter. Most people, however, don’t really comprehend investment basics, which is one of the major reasons people make investment mistakes in the first place.

After you understand the specific types of securities (stocks, bonds, and so on) that funds can invest in, you’ve mastered one of the important building blocks to understanding mutual funds and exchange-traded funds. A mutual fund is a vehicle that holds other investments: When you invest in a mutual fund, you’re contributing to a big pool of money that a mutual fund manager uses to buy other investments, such as stocks, bonds, and/or other assets that meet the fund’s investment objectives.

Exchange-traded funds (ETFs) are a very close relative of mutual funds and differ from them in one particular way. ETFs trade like stocks on a stock exchange and thus can be bought or sold during the trading day when the financial markets are open. (In Chapter 2, I explain one exception to this rule. A type of mutual fund, known as a closed-end fund, which accounts for a mere 1 percent of mutual fund assets, trades on a stock exchange during the trading day and has a fixed number of shares outstanding.)

Differences in investment objectives are how funds broadly categorize themselves, like the way an automaker labels a car a sedan or a sport utility vehicle. This label helps you, the buyer, have a general picture of the product even before you see the specifics. On the dealer’s lot, the salespeople take for granted that you know what sedan and sport utility vehicle mean. But what if the salesperson asks you whether you want a Pegasus or a Stegosaurus? If you don’t know what those names mean, how can you decide?

Fund terms, such as municipal bond fund or small-cap stock fund, are thrown around casually. Fact is, thanks to our spending-oriented culture, too many folks know car models better than types of funds! In this chapter (and in Chapter 2), I explain the investment and fund terms and concepts that many writers assume you already know (or perhaps that they don’t understand well enough themselves to explain to you). But don’t take the plunge into funds until you determine your overall financial needs and goals.