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MINUTE 4:� Mutual Funds

What is a mutual fund?� Think of it as a single stock (or bond) that is made up of a collection of stocks (or bonds).� Analysts at a mutual fund company have put together a these mutual funds to help investors meet certain goals.� If the investor is wanting to invest for retirement, the mutual fund company will start a "retirement"-oriented mutual fund by buying a lot of stocks that will perform well over the long term.� Mutual Funds are an excellent way to get your feet wet in the market.� In fact, many investors never move beyond mutual funds.�

The benefits of the mutual fund are great because:

• You can invest in a lot of stocks without buying individual shares in all the stocks.

• You spread the risk among several places.� For example, if a single company's stock drastically falls in value, it won't affect the overall mutual fund value because they will have bought a lot of other stocks that are not going down in value (hopefully!).��

• You can invest with very little money.

• Mutual Funds are a little higher risk than MM accounts, but they also yield a better return overall.���

Also, you can keep growing your money here while you learn more about investing in general.� (See our article "Raiding Piggy" for more info on how to locate some good "large cap" funds.)� Your next investment choices after this are riskier mutual funds...or moving directly into stocks and bonds (Minute 5)!

The final stretch.� First, let's review.� We learned that you must have a goal for your investment...and that as your potential investment return goes up, so does the risk of losing some or all of your money.� Then, we talked about a Rainy Day fund, setting aside 3 months of living expenses for emergencies in a MM account.� Then, we just covered getting our feet with with Mutual Funds.� OK, on to Minute 5....��

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After you have mastered the first 4 Minutes, then you are ready for Minute 5...but not before!� Be smart and build your financial foundation right...having some money invested in all of the options we suggested, not just stocks!

Stocks and bonds are simple.� Owning a stock means that you own a piece of a company.� Owning a bond means that the company owes you some money.� Stock has more potential, because you own potential returns...but you also own the potential risk that the stock will go under.� So, based on what we learned, we know that owning stocks can give you the highest return of all...but you could lose everything!��

With stocks, you get a portion of whatever the company earns or loses.� In the case of "earn", you might even get a dividend, which is a cash payout of your portion of earnings.� However, most of the time investors count on the value of the stock rising rather than getting a dividend.��

Bonds are sure money.� When you own a bond, you have a much surer chance (less risk) of making a moderate return...rather than a fair chance of making a great return, like in stocks.� With bonds, you get interest payments on a debt.

It takes a while to understand stocks and bonds...we won't try to explain them all here.� We suggest that you learn more about them as your money is growing in those large cap mutual funds we suggested.��

Final Point:� Don't take money from the Rainy Day Money or from your base in your mutual funds to invest in stocks/bonds!� Wait instead until you have a certain amount accumulated in investments...let's say $10-$20,000.� Then, use only NEW contributions to invest in stocks.��

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