Investing In Mutual Funds

Over the past decade, American investors increasingly have turned to mutual funds to save for retirement and other financial goals. Mutual funds can offer the advantages of diversification and professional management.


But, as with other investment choices, investing in mutual funds involves risk. And fees and taxes will diminish a fund's returns. It pays to understand both the upsides and the downsides of mutual fund investing and how to choose products that match your goals and tolerance for risk.

Below are some key points to consider before investing in mutual funds:

1) Mutual funds are not guaranteed or insured by the FDIC or any other government agency, even if you buy through a bank and the fund carries the bank's name. You can lose money investing in mutual funds.

2) Past performance is not a reliable indicator of future performance. So don't be dazzled by last year's high returns. But past performance can help you assess a fund's volatility over time.

3) All mutual funds have costs that lower your investment returns. Shop around, and compare the costs of owning different funds before you buy.

All funds carry some level of risk. You may lose some or all of the money you invest and your principal because the securities held by a fund go up and down in value. Dividend or interest payments may also fluctuate as market conditions change. Before you invest, be sure to read a fund's prospectus and shareholder reports to learn about its investment strategy and the potential risks. Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals.

If you decide to invest in mutual funds, be sure to obtain as much information about the fund before you invest. And don't make assumptions about the soundness of the fund based solely on its past performance or its name.