ECONOMICS REPORT - Americans Invest for the Future in Mutual Funds

Written by Mario Ritter

This is the VOA Special English Economics Report.

Investments

People invest money in the hope their wealth will grow over time. People with a lot of money may have financial advisers to make investments for them. But people with limited savings can invest through mutual funds.

A mutual fund is a collection of different financial securities. These include stocks and debt-based investments.

Stock in a company gives the buyer a financial share in that business. The shareholder may receive a small payment, or dividend, from time to time for each share owned. But the value of stocks can change greatly in a short time.

A debt-based security, like a bond, represents a loan for a set period of time. Companies or governments sell these securities as a way to borrow money. Most debt securities pay interest until their period ends, or they reach maturity. After that, the loan is repaid.

Mutual funds can invest in stocks, debt securities or a mixture of both. They offer investors a lot of choice. For example, a stock index fund can be designed to match the performance of the whole stock market, investing in thousands of stocks. For as little as one thousand dollars, an investor can own the stock market. Index funds also cost little to own.

On the other hand, trading individual stocks and bonds can be costly. Investment trading companies charge investors to make trades on exchanges like the New York Stock Exchange or NASDAQ. But if a buyer invests only a small amount, the cost of trading can quickly reduce his or her investment gains.

The Investment Company Institute says the average yearly cost of a mutual fund is a little over one percent of the amount invested. And costs continue to drop.

Mutual funds also reduce risk. They spread money over hundreds of investments. This limits the harm from a single investment loss. But, even the largest mutual funds still carry some risk. There is no guarantee that a mutual fund will gain or keep its value under bad market conditions.

Today, there are almost eight thousand mutual funds in the United States. And Americans continue to increase their mutual fund holdings.

About half of all American families own some mutual funds. Their average investment is forty-eight thousand dollars.

And that's the VOA Special English Economics Report, written by Mario Ritter. You can find our reports, including transcripts and MP3 files, at www.unsv.com I'm Steve Ember.