What are mutual funds?

When you start a savings account to build wealth for retirement or to make a profitable investment, you may consider other options to expand your gains. Diversification is often heralded as the key to a successful investment strategy, and you can add mutual funds to your roster.

What is a mutual fund?
This tool is another type of investment vehicle, similar to stocks, bonds and certificates of deposit. With a mutual fund, a pool of investor assets is collected, and those funds are invested by money managers. Through the fund, you can invest in money market accounts, stocks, bonds and other securities. The collection of the investors' assets is known as the fund's portfolio.

The purpose of a mutual fund is to allow you to diversify your investments without having to make separate trades and purchases. By contributing to the fund, you own a share of the portfolio as well as any income earned.

What are the benefits of mutual funds?
This investment vehicle has its advantages. With a mutual fund, the net asset value of your shares can increase if the market value of the portfolio goes up once expenses are deducted. You can also earn dividends on stocks and interest on bonds, which is paid out from the fund after all expenses are subtracted.

At the end of each year, you get to rake in capital gains for any assets that were sold with an increased value. After any capital losses are deducted, the value of of any gains is distributed to investors.

Keep in mind that there will be risks as well as benefits, as with any investment vehicle. Read the prospectus prior to buying shares to understand the possible negative outcomes outlined by the money manager.

How can you get a mutual fund?
If you have an employer-sponsored 401(k) plan, you'll likely be given the option to invest some of your savings through a mutual fund. These plans often allow you to select which securities you want to invest in, and you can boost your retirement savings with the gains you accrue. You can also get in contact with a mutual fund broker.

When reviewing the prospectus, check the objectives, performance and fees as well as the risks. This can help you understand whether the mutual fund you're considering is the right fit for your assets.

For more information on effective wealth management strategies, contact Landmark Bank.

Investment products and services are not FDIC insured, not insured by any federal government agency, not a deposit or bank obligation, not financial institution guaranteed, subject to investment risk, including potential principal loss.

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