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Mutual Funds

Mutual funds are a form of pooled investment. The fund will invest in many different stocks, bonds, currencies or other securities. You buy shares in the fund itself, rather than in the underlying securities. The idea is that you get the benefit of diversity, and, you hope, the strategic investment expertise of the fund manager.

Hundreds of different mutual funds exist, specializing in a broad array of investment areas. Money market funds, which invest in government and corporate debt, are widely sold by banks, brokers and most other financial institutions. Many funds specialize in particular industries, like high tech, energy, precious metals, emerging markets, or geographic areas around the world. The largest fund companies, like Vanguard and Fidelity, have hundreds of funds, each managing billions of dollars.

No fund exists without some kind of operational cost to the investor, in addition to market risk. Some mutual funds charge “loads,” or sales fees; some do not. All funds take a percentage of the money invested to pay for running the fund and paying the managers.

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