Learning about money management can be a fun experience. Yay money!! Whoo hooo!! Ready?
Today, class, we are going to learn about mutual funds.
When investing your money, one of your options is to buy shares in a mutual fund.
Most mutual funds are made up of stocks and bonds from different companies. Many times, the companies represented in mutual funds have something in common. They may all be technology companies, or the companies may all be based in a particular continent.
So, for example, Cookie Monster is looking for a mutual fund so he can invest some of his money from his hard-earned win in the Monster Olympics (His sport was – you guessed it – competitive eating).
Cookie wants to invest in a fund that holds shares in companies that he is interested in (always a good strategy – buy what you know.) So Cookie dusts the crumbs off his keyboard and starts Googling and using tools like Yahoo Finance’s Mutual Funds Center to see what’s out there.
Lo and behold, he finds a mutual fund that has all its investing in cookie companies! Oh happy day!! Cookies International (COOKIE) is the fund he wants to go with. Cookie eats some chocolate chips to celebrate.
But wait, he needs to find out if the mutual fund charges a fee to invest in the fund or sell it. Mutual funds that don’t charge a fee are called no-load funds. Good, he finds a cookie mutual fund that doesn’t charge a fee. Then he looks up the fund’s expense ratio. (Expense ratios are a lot to get into here, so we’ll skip that for now.)
The fund does have a minimum amount of money he has to invest – in this case, $500. Cookie takes his money from his cookie eating competition and adds it up. Yep, $500 exactly (funny how that works).
Cookie’s got a couple of options. He can take his $500 to an investment broker, who will then invest the money for Cookie. Cookie could also buy the mutual fund online, after he deposits the $500 in his account. Cookie opts to walk to his broker’s office (Cookie Monsters don’t drive!) and discusses his fund choice. The broker sees that Cookie has done his research, and also gives Cookie some other options of mutual funds that also deal with cookie companies. In the end, Cookie decides to go with the COOKIE fund.
Cookie feels like he has really accomplished something (and he has), so he eats an entire Tupperware container full of Snickerdoodles. And why not? He has reason to celebrate!