Definition

A mutual fund is an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. A professional fund manager handles the fund, making decisions on behalf of the investors.

Analogy

Think of a mutual fund like a community garden. Instead of buying and maintaining your own plot of land, tools, and seeds, you join forces with other gardeners. A skilled gardener (the fund manager) tends to everything, and you own a share of the total harvest. Whether the garden yields tomatoes, herbs, or flowers (different types of investments), you benefit from a variety without doing all the work yourself.

Little-Known Fact

Did you know that the first mutual fund, called the "The Massachusetts Investors Trust," was created in 1924. It allowed small investors to pool their resources to gain access to investments previously available only to the wealthy.

Action Step

Look up your retirement account or investment portfolio today. Mutual funds are a common choice for these accounts. Identify a mutual fund you own and check how many stocks each fund contains.