I think I first heard about Mutual Funds from Bo Sanchez. He likens it to a vehicle that almost anyone, with some funds to invest, can jump into, and that it should be a staple in the portfolio of any smart investor.

I was not entirely convinced (I did not really understand).

To further dispel the mystery of this so-called staple – Mutual Funds – I did some further reading and some interviews. It is simpler than I thought.

Mutual Funds, turns out, is an investment vehicle where people can pool their resources to take advantage of the magic of larger numbers, that is, because a lot of people invest into “the fund”, they have a large number, and thus, the mutual fund manager – a professional who will manage the investment – can get better rates of return for them. The mutual fund manager trades the “pooled” money on a regular basis and the net proceeds or losses are then typically distributed to the investors annually. As my friend Salve Duplito said in one of her articles in MoneySmarts, with as little as USD$100, the regular John or Juans can get their feet wet in an instantly diversified portfolio of stocks, bonds, or both.

A sort of safe haven for the cautious investor.

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Be warned, though. The stock market is not for the faint of heart. It is a very volatile market. Millions are made and lost in a heartbeat in this game. But you can (kind of) play with stocks via the route of mutual funds, a pool of stocks managed by a fund manager, and a good option for first time investors. But this is long term (read: at least 7 years) so the risk is eased out of the equation. Okay, okay. It is not very exciting.

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