Building Your Portfolio. Building a mutual fund portfolio is similar to building a house: Many different strategies, designs, tools and building materials exist, and may be applied; but each structure shares some basic features. To build the best mutual funds portfolio, go beyond the sage advice, ”Don’t put all your eggs in one basket.” A structure designed to withstand the test of time requires smart design, a strong foundation and a simple combination of mutual funds that works well for your needs.
Avoiding the Dave Ramsey Mistake
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Basic Types and Categories of Mutual Funds
While it can be confusing, the answers to the following three questions will help you navigate the mutual fund waters—from how they work to how to add them to your investment portfolio. What Is a Mutual Fund? For all intents and purposes, mutual funds serve as an alternative for investors who can’t afford an individually managed account. Mutual funds are formed when investors with smaller amounts of capital, pool their money together and then hire a portfolio manager to run the consolidated pool’s portfolio—subsequently buying different stocks, bonds, or other securities in a manner consistent with the fund’s prospectus. Each investor then receives their respective piece of the pie while sharing the expenses, which show up in something called the mutual fund expense ratio.
Getting Started. Investing begins before buying the first mutual fund (or prior to buying the next one). If you’re investing independent of a financial advisor, ask yourself a few questions: What do you hope to accomplish with your savings? A secure retirement? Accumulation of wealth for strengthening your financial security? What is your time horizon? One year? Five years? 10 years?