What are mutual funds?

A mutual fund is a company that collects the money of many investors to invest in a variety of different assets. The company invests in stocks, bonds, money market securities or some combination of these. Those assets are professionally managed on behalf of the shareholders. Each investor holds a share of the portfolio and is entitled to any profits, but subject to any losses in value as well.

An individual investor has the benefit of having someone else manage its investments, taking care of record keeping, diversification over many different securities that may not be available or affordable to the investor otherwise.

Each mutual fund is a company so there is a risk of buying share of such company, but that risk is less then investing in regular company, because the work of mutual funds is heavily regulated.

A mutual fund is diversified. In addition to that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify. You can search for mutual funds here: http://www.mfea.com/FundSelector/default.asp. Also, a proper choice of mutual fund can help us save money on taxes (through different types of IRA).