In this introductory set of chapters, we consider the role of mutual funds in today's investing environment, learn just how popular mutual funds have become, and consider why investors have chosen to put so much money into funds. Clearly, mutual funds are a major financial asset for numerous investors, and in many ways they play the dominant role in today's investing world for millions of households.
We also review the basics about mutual funds, defining terms and discussing the mechanics about how funds work. When you have a good understanding of how funds operate , you will be able to evaluate them objectively in Part 2.
We also consider briefly why consumers need to critically evaluate mutual funds and consider other alternatives. Investors typically hear only one side of the issue: why they should buy mutual funds. Today, more and more investors are becoming aware of the potential downside. This includes the costs of owning funds, the inflexibility they have with regard to taxable distributions, and the never-ending treadmill of chasing the top-performing funds ”a pursuit that generally leads to failure.
The overall goal throughout the book is always the same ”to help you, as an investor, make good investing decisions. To accomplish this, you need factual information, and a clear understanding of the alternatives available to you as an investor. Also, very importantly, you need an objective view of the overall situation that examines both sides of the issue.
In Part 1, you will gain the factual knowledge you need to understand these issues, and clearly understand how mutual funds operate. You will also begin to understand how problems can arise for investors when they consider buying mutual funds and when they own them.
