April 23, 2011

Mutual Funds

To help you set yourself for retirement, or to have a million dollars by age 35 or so, I'm going to give you a quick education of mutual funds!

Mutual Funds are a wonderful way to prepare for your future, whatever that may be. If you want to have your house paid off, a nice car, and early retirement then a mutual fund is a legitimate and low risk way to do so. If you want to have save a million bucks, simply putting your savings into a bank savings account earning 0.02% interest isn't going to get you there fast enough.

A mutual fund uses compounding interest to help you earn money. I've made a simple video explaining compounding interest:

Now that you know how compounding interest works, it should be fairly easy to decide you want to invest in a mutual fund! As a disclaimer, mutual funds do carry risk and there are several types always do more research before investing.

I'm going to give you guys a glimpse into my fund which I've held since July of 2009:

My first investment was for $1,000 and I originally planned to re-invest $1,000+ every year but it hasn't been good for on the job market lately. However, as you can see even after 3 years I've earned nearly $400 all thanks to compounding interest (and the market recovering!)

There are several ways to invest in mutual funds through financial advisors and online. What I have learned since opening my mutual fund that there is one mutual fund that is constantly returning high % returns and outperforming the other funds, the Vanguard 500. Personally, when I get my next $1,000 I will be investing in that one.