What exactly is a mutual fund? Imagine this scenario: You have only $500 to invest. You believe that it's risky to invest in only one stock, but you also know that you shouldn't and can't spread yourself too thin with that amount of money. But what if you got together with 20 friends who each had $500? Together you'd have $10,000, enough to invest in several stocks without commission costs running too high. Nice job.
Uh-oh. Now who decides what to buy and when to sell? Ah, another problem. Perhaps your group chooses to pay some guy in a bow tie and suspenders to manage everything for you. If so, then you've essentially got a mutual fund on your hands.
A mutual fund is thousands of people's money, pooled together by an investment company and invested in stocks, bonds, and other things, all managed for you by Wall Street professionals -- for a sometimes hefty fee.
There are gobs of lousy mutual funds out there, but there are also a bunch of top-notch ones that can serve you as well as many solid stocks would. Learn a lot more about mutual funds by checking out our Mutual Fund Center.
Let us help you be a better mutual fund investor. You could do a lot of research yourself online for funds with long, strong track records and managers who inspire your confidence and trust. Or you might simply grab a free trial of our Motley Fool Champion Funds newsletter, and see which funds our analyst Shannon Zimmerman is recommending.