A mutual fund is a portfolio of professionally managed stocks and/or bonds. For a small management fee, the management firm provides daily oversight of the portfolio, selecting the securities (stocks and bonds) that they believe will deliver the greatest investment returns for a given level of risk. As such, the investor has the benefit of diversification and professional management to help optimize their investment returns. A mutual fund that diversifies across most of the different industries in this country can be considered an investment in American enterprise overall.
There are many variations on these mutual funds: corporate bonds, government bonds, municipal bonds, common stock, preferred stock, open end funds, closed end funds, exchange traded funds (ETFs), etc. It will be worth your while to learn about these in considerably more detail. In addition, you should seek counsel from an investment professional to help you determine what mix of these securities should be present in your investment portfolio.
In our discussion of Formula 15, we observed a number of challenges, one of which was the challenge of finding good investment returns and then dealing with their associated risks. With this in mind, one might be somewhat discouraged about the idea of finding higher yielding investments. And while it’s important to proceed with caution in this area, implementing the principles of diversification and balance can mitigate a significant amount of that risk.