In my Millennial Money podcast yesterday, we talked all about How To Set Up an IRA. Now that we’ve got that covered, it’s time to talk about Mutual Funds.
When you invest in your 401(k) or IRA, you will likely invest in Mutual Funds. Think of them as a basket of companies all put together to form one fund. The pluses are that with mutual funds if one company has a bad quarter or a bad year, it will hopefully not affect all the other companies in the basket of companies. I always like to put things in terms of food, so if I went to a party and all the desserts were great, except the cookies, I would still be really happy, even though I love cookies.
Mutual funds come in all different types – large cap stocks, small cap stocks, foreign stocks, emerging market and so on. If you love mutual funds and are bored one day, you can look at the 2015 Fact Book of all the different funds. (And then let the rest of us know, because who wants to read all of that?!)
The best piece of advice I can give you is not to pick a mutual fund because you like the name, or because your friend is choosing that one. Think about what you like, what makes sense to you, and then do a little digging online. How do you feel about the top companies in that fund? Do you know who they are? How has the funds returns been in the last year, 3 years and 5 years?
You might never feel like you totally understand what funds you are choosing. Even I scramble a bit sometimes trying to make my chooses, but as long as you have some sort of strategy, that is the best you can do. Have fun with mutual funds…they are your friends!