Chapter 1. Making More Money, Taking Less Risk

In This Chapter

  • Defining mutual funds

  • Understanding investments

  • Weighing your options

  • Seeing the big picture: returns, risks, and risk reduction

In my years of work as a financial adviser and a columnist answering many readers' questions, I've seen the same, avoidable mistakes being made over and over. Often, these investing mistakes occurred for one simple reason: a lack of investment understanding. People didn't know what their investing options were and why particular options were inferior or superior to others.

By reading this book, you can prevent yourself from making investment mistakes. And you can take advantage of an excellent investment vehicle: mutual funds — the best of which offer you diversification, which reduces your risks, and low-cost access to highly diversified portfolios and professional money managers, who can boost your returns with less risk. And mutual funds can fit nicely in the context of your overall financial plans and goals. This chapter gives you an investment overview so that you can see how mutual funds fit into the overall investment world.

Introducing Mutual Funds

If you already understand stocks and bonds, their risks and potential returns, and the benefits of diversification, terrific. You can skip this chapter. Most people, however, don't really comprehend investment basics, which is one of the major reasons why people make investment mistakes in the first place.

After you understand the specific types of ...

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