Mutual funds are one of the most popular investment vehicles in America.  So popular that there are well over 10,000 available to choose from!  Most articles focus on picking a fund but I’m going to ask a completely different question. Are the benefits of mutual funds mutually beneficial?

What is a fund?

To start let’s define what a mutual fund is for those readers who may be a little unsure.  A mutual fund is an account (called a fund) where many people pool their money for the purpose of investing. Imagine you want to buy a McDonald’s franchise.  However the cost of opening this store is going to be almost $2 million.  You do not have that much money so you look for partners.  Eventually there are 5 partners, each splitting the $2 million startup investment.  Then 4 years later the 5 of you decide to sell.  You sell the complete business for $10 million and divide the profits 5 ways.  That would be a partnership.  And yet it’s also a good  picture of how a mutual fund works.

A mutual fund is a bunch of people who become small partners.  They pay in their investment and then someone else runs the business – in this case a stock portfolio.  However there are some partners who don’t pay in.  In fact they get paid to not pay in.  They are the fund managers and all the people involved in the business.  And that’s where the mutual benefits break down. 

The inequality comes in the form of SEC rules.  According to SEC rules a mutual fund can only buy stock, hold it, and sell it later.   That means a mutual fund can only make money when the stock market goes higher.  The plan of the fund manager is to buy low, and sell high.  Unfortunately the stock market does not always go up (just look at the October 2008 market crash).  So inevitably the fund’s value will go up and down.  At the end of the year investors are hoping generally for an annual return, or growth, of about 15-20%. 

» Read more: Stock Market Tips – Are Mutual Funds Really Mutually Beneficial?

How can I start making money in the stock market? You might be taken aback if you knew just how many times I heard this question! Of course it makes sense that people are searching for the surest way to earn money from the stock market, after all who doesn’t want a little extra money! Let’s look at the smartest way to make a profit in the stock market.

Making money from investments is a powerful feeling. Your money is in your hands, all decisions are yours, and you’re making good investment choices. Wow, what a high!

Though it’s necessary to apply yourself, it is possible to make a profit from the stock market, if you choose a few smart moves.

In this article, I want to talk about what I know to give you the best chance turning a profit by investing in stocks. If you know how much time you can schedule for your investment strategies, it’s not too difficult to turn a profit.

» Read more: Here’s An Easy Way To Start Making Money In The Stock Market

If you’re reading “Stock Market for Beginners” you probably have never traded a stock. The stock market is a real place if you’re talking about The New York Stock Exchange, often abbreviated NYSE. This exchange has floor traders that take the orders submitted by customers either online through a company or through their broker. Bidding on the stock occurs, like a crazy auction and the trade then moves to a specialist that facilitates the trade by matching the highest bidder to the lowest seller.

There are other markets besides NYSE. These are primarily electronic markets that are not a specific location. Market makers specialize in a specific stock, like the specialist at the NYSE, but instead of facilitating bid orders, he buys and sells. This is a dealers market where the dealer sells for the ask price, the higher price, and buys for the bid price, the lower price. The difference between the two prices is the spread, or how the dealer makes his money. He may buy a stock from you , put it his inventory and seconds later he sells the stock to someone else. The NASDAQ is the most famous but there are other exchanges. NASDAQ stands for National Association of Security Dealers Automated Quotation. There is no place the market makers all meet but they link electronically.

No stock market for beginners article would be worth anything if it didn’t explain the language of the trade. If you place an order with a broker, most of the time they ask questions in terms that you understand, or make the order decisions themselves. If you go online to place an order then you suddenly have a completely new language in front of you.

» Read more: Stock Market Tips For Beginners