Stocks and Mutual Funds

A stock is simply a piece of a company that you are buying or selling based on what people believe  it to be worth. When people believe that a company is not doing well or there is bad news for a company for example, they may decide to start selling that stock and that is what causes the value of that stock to go down. When people believe a stock is going to do well or they hear good rumors about a stock, then they will probably buy the stock and cause it to go up. This is the basics of stocks in their simplest form.

A mutual fund is simply a combination of stocks that is grouped together into one investment vehicle and managed by a trading company like Fidelity. Mutual funds work the same way as stocks in terms of going up and down. When the stocks in a particular mutual fund are being sold more than they are being bought then the price of that mutual fund will go down and vice versa. I like buying mutual funds more than individual stocks because they allow you to diversify your stock portfolio with little effort. If one stock in a mutual fund ends up going down dramatically it is not as big of a deal as if you were to just own that particular stock. You can still buy stocks in an industry you believe in with mutual funds without having to worry as much about one stock dropping significantly.

As we talked about in the S&P 500 section my favorite mutual funds are based upon the S&P 500 itself. In my opinion these are the safest stocks to invest in because they are stocks that are household names and typically tend to stick around as businesses. I also invest in mutual funds in industries I believe to be up and coming like robotics and renewable energy. Whatever type of industry you wish to invest in chances are there is a mutual fund for you. Remember to buy these at a discount just like with individual stocks and try to buy mutual funds with companies that you think will be around for a while.