You’ve worked hard to save up a sizeable nest egg and now you’re ready to invest some of it. You could invest a portion of it in the stock market and hope that pays off well. If you aren’t ready to take that kind of leap of faith (understandable, given the current economy), there are other avenues you can choose. You might, for example, look into some high yield money market accounts, or you could even look into investing in a mutual fund.
A mutual fund is a fund that several investors pay into. The fund is managed by a third party who then invests the money from the fund into a variety of different things (stocks, bonds, etc). When those investments pay off, the owners of the fund split the profits. It’s a great way to invest without having to worry about taking care of everything yourself. Of course, just like when you’re trying to find good credit card offers, some research is required to make sure you’re getting the best deal possible.
If you aren’t well versed in financial lingo, hire a financial planner to help you. Your financial planner will take a look at your current income, credit accounts, checking and savings accounts and any other investments you have (like bank CDs, savings bonds, etc). He or she will take a look at your spending habits, current assets, etc. Basically a financial planner puts together a picture of your current financial health and then helps you figure out what to do with your money in the future. A financial planner will help you figure out whether or not a mutual fund is in your best interest and, if so, into which kind of mutual fund you should invest.
There are benefits and disadvantages to investing a portion of your nest egg into a mutual fund. On the “pro” side, investing in a mutual fund gives you, the independent investor, the opportunity to invest in a wide variety of things that you might not have had access to on your own. The fact that most mutual funds are actively managed and monitored is another check in the “pro” column since you won’t have to worry about the fund tanking because nobody was paying attention to it. They are also typically much cheaper than other types of investments.
On the other hand, since you’re one of a group of investors with the fund, you don’t get to control how your investment is spent. You give that control over to the person who is managing the fund for your group. The money is also subject to higher taxes than regular income. They also have more fees attached to them than a straightforward stock purchase.
Whether you choose to invest in a mutual fund is up to you. If you do decide to go this route, do so carefully. Don’t invest your entire nest egg. Work with a professional who has your best interests at heart. Do the research. The better prepared you are, the more likely you are to get the best return on your investment possible.