What is a mutual fund?
A mutual fund is a company that pools money from many different people to invest in a portfolio of stocks or bonds. Funds are managed by professionals who decide which stocks or bonds to buy, and investors benefit from the performance of the portfolio.
How much can I expect to gain from a mutual fund investment?
That depends on the type of fund you invest in. As a rule of thumb, an equity fund (stocks) should provide a return of between 8-10% over the long term; a balanced fund (combination of stocks and bonds) should generate a return between 5-7%; and a fixed income fund (bonds, preference shares) should provide a return of between 4-5%. But remember: all investing involves risk, and the value of any investment can fluctuate.
Are investments into mutual funds guaranteed?
No. Shares in a mutual fund may be worth more or less than you paid for them. Like all investments that offer the potential for better returns over time, they entail some level of risk.
Who should consider investing in a mutual fund?
Anyone concerned about:
- Funding for education
- The low rate of return on bank deposits
Who should not invest in a mutual fund?
Mutual funds are appropriate for most investors. However, they are probably not the right vehicle for:
- Anyone who is unwilling or unable to withstand fluctuations in the value of the account, or a loss of principal;
- Anyone who will need their funds within a 5-year time frame;
- Anyone who is unwilling to assume investment risk of any kind.