Where To Invest

Are you interested in building long term wealth in the stock market but not interested in trying to figure out which stocks to pick for your portfolio? There's no need to worry. You can still capitalize on the power of the stock market without learning how to select individual stocks for your portfolio. All you need to do is learn how to invest in mutual funds, give yourself time to grow and you can build a net worth of over a million dollars over the long haul with mutual funds.

When you are investing in the stock market, timing is everything. You absolutely don't want to sit on a stock that is dropping in price. With mutual funds it's a completely different strategy. The best way to create wealth when investing in mutual funds is to employ a buy and hold strategy. Trying to time the market with mutual funds the way you try to time stocks will only result in massive frustrations and consistently losing money in the process.

So what type of mutual fund should you purchase? One of the best types of mutual funds to invest in is an index fund. An index fund is a mutual fund that seeks to replicate the performance of one of the general market indexes, such as the Dow Jones, the S&P 500 or the Nasdaq Composite Index. Why an index fund? Believe it or not, 85% of the mutual funds available in the open market today fail to outperform the S&P 500 index. As the old saying goes "if you can't beat them, join them!" Purchasing an index fund allows you as the individual investor to get a full exposure to the general market trends, providing you with the ultimate form of diversification.

Some financial advisors recommend that you diversify into multiple mutual funds. I disagree. A mutual fund by nature is already diversified unless the fund you select is a fund that is geared towards companies in a certain industry, such as technology or pharmaceuticals. Why would you diversify your diversification? I've never understood that advice and I suspect that this advice was giving out for the purposes of increasing revenues for the mutual fund companies by being able to charge different management fees for different funds. Unless you have over a million dollars invested into mutual funds you don't need anymore than 1-3 mutual funds to invest in.

The best strategy for investing in mutual funds is to start off with an initial cash investment. Ideally you should start off with at least $10,000 so you can enjoy maximum growth. However, anything is better than nothing. Find out what the minimum amount is that is required for the mutual fund that you are interested in investing in. Once you save up the initial amount you can go ahead and start off with that. You then want to add to your initial amount on a monthly basis. Understand that it takes 10, 20 even 30 years of investing in mutual funds before you can build a million dollar portfolio. However, if you have the patience and the discipline you can make it happen.

Author: S Mcleod
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