Mutual Fund Explained - What is a Mutual Fund and How Does it Work? (GoodFinancialCents.com)


Uploaded by goodfinancialcents on 30.12.2011

Transcript:
This is Jeff Rose, goodfinancialcents.com. Welcome to my kitchen. Today I am going to
explain to you what a mutual fund is and why it is important you know how it works. Somehow
I am going to tie that in with a favorite recipe of mine, which is a steak chili recipe,
now a Christmas Eve tradition with the Rose family.
First, what is a mutual fund and why is it important to you. If you have a 401K, if you
have a 403B, if you are starting any type of investment account now days, I can pretty
much assure you that you are going to have some sort of mutual fund in your portfolio.
I am amazed when I run into so many different people that are familiar with the term mutual
fund but they really don’t know exactly how it works. Most likely Social Security
is not going to be there for you so you need to know what a mutual fund is because if you
have a 401k that is what you are putting your money into.
Let's explain what a mutual fund is and tie that into my steak chili recipe. Let's take
a look. Okay, here I am with all my ingredients laid out for the steak chili recipe and I
know at this point in time you are wondering how this relates to what a mutual fund is.
Let me break it down for you. Today I'm acting as the top chef and I am going to put together
the best tasting steak chili recipe ever. As the chef I have to make sure that I am
choosing the right ingredients and the right proportions to make sure that this chili tastes
awesome where my family absolutely loves it. If I come across an ingredient that is either
rotten or just doesn't make sense with the instructions that I have then I need to make
adjustments accordingly.
If you apply the chef concept with a mutual fund manager or a money manager, that is the
capacity they work in. They are the chef where their ingredients, instead of having the beans,
steak, hamburger, and the tomato sauce, their ingredients are the stocks and bonds and all
the other types of investments that go in these mutual funds. As a chef or as that money
manager, they are going to be looking at all their ingredients on an everyday basis and
they are going to make changes accordingly. That is why it is so important to understand
how this works.
Think of all the times you go out to eat where you rely on that chef to make the best tasting
dish possible and just how easy that is. You don't have to worry about the ingredients.
You don't have to worry about preparation. You don't have to worry about cooking. You
just sit down and eat. That is the equivalent relationship that you have with a mutual fund
manager. You don't have to worry about the ingredients. That's what they do. They buy
the stocks. They buy the bonds. They sell the stocks and bonds and try to make you the
most money possible. If you have any more questions, you know where to find me. This
is Jeff Rose, goodfinancialcents.com. We'll see you soon.
The opinions voiced in this material are for general information only and are not intended
to provide specific advice or recommendations for any individual. To determine which investment(s)
may be appropriate for you, consult your financial advisor prior to investing.