Mutual funds. A different approach. Up until now, we have described the ways in which securities are bought directly, and we have discussed how you can make such investments through a brokerage account. But a brokerage account is not the only way to invest.
For many investors, a brokerage has disadvantages-the difficulty of selecting an individual broker, the commission costs especially on small transactions, and the need to be involved in decisions that many would prefer to leave to professionals. For people who feel this way, there is an excellent alternative available-mutual funds. It isn t easy to manage a small investment account effectively. A mutual fund gets around this problem by pooling the money of many investors so that it can be managed efficiently and economically as a single large unit. The best-known type of mutual fund is probably the money market fund, where the pool is invested for complete safety in the shortest-term income-producing investments.
Another large group of mutual funds invest in common stocks, and still others invest in long-term bonds, tax-exempt securities, and more specialized types of investments.
The mutual fund principle has been so successful that the funds now manage over 400 billion of investors money-not including over 250 billion in the money market funds. 8.1