Earning money through mutual funds is one of the best methods for the average investor to build wealth or save for retirement. Mutual funds are pools of money managed by professional investors and take advantage of the easiest ways to make money – reinvested capital gains and dividends, and dollar cost averaging. Earning money through mutual funds is also a great way to gain exposure to stocks, bonds, real estate, or even precious metals without the risk of picking individual assets.
When stocks within the mutual fund are sold or pay dividends (this usually happens quarterly or at year end) you can elect to have those amounts paid to you or reinvested by buying additional shares of the fund. This is one of the best ways that you can make money through mutual funds, as the money you invest makes money which is reinvested and makes you even more money, etc. Like compound interest the more money you make, the more is reinvested, which makes you even more money.
The other way that mutual funds help you make money is through dollar cost averaging. Instead of trying to time your purchases of mutual funds when the market is low (buy low, sell high), mutual funds enable you to make small dollar, regular purchases, like $50 or $100 a month. These regular purchases have shown to be a more certain method of keeping your average price low instead of trying to time the market. Setting up a monthly schedule for a small purchase (you can set up an automatic withdrawal from your bank account at many mutual fund institutions) is one of the best ways to contribute to a mutual fund and build wealth over the long term.
Balance is extremely important in earning money through mutual funds. You want to make sure that you have a good mixture of funds that expose you to all market sectors (healthcare, energy, real estate, technology), stock categories (growth, value, income, international), and include some bonds as well. Proper diversification will help your portfolio weather market fluctuations and will assist toward generating higher returns.
There are many resources of the web to find information about funds: www.fidelity.com, www.morningstar.com/, www.schwab.com, etc. Do your homework, research several different companies and their offerings, and familiarize yourself with the terminology of mutual funds and investing. You’ll become a wiser more effective investor, and probably be able to earn more money through mutual funds for your efforts.