You can potentially make money in an investment if:
.The company performs better than its competitors.
.Other investors recognize it's a good company, so that
when it comes time to sell your investment, others want
to buy it.
.The company makes profits, meaning they make enough
money to pay you interest for your bond, or maybe
dividends on your stock.
You can lose money if:
.The company's competitors are better than it is.
.Consumers don't want to buy the company's
products or services.
.The company's officers fail at managing the business
well, they spend too much money, and their expenses are
larger than their profits.
.Other investors that you would need to sell to think the
company's stock is too expensive given its performance
and future outlook.
.The people running the company are dishonest. They
use your money to buy homes, clothes, and vacations,
instead of using your money on the business.
They lie about any aspect of the business:
claim past
or future profits that do not exist, claim it has contracts
to sell its products when it doesn't, or make up fake
numbers on their finances to dupe investors.
. The brokers who sell the company's stock manipulate
the price so that it doesn't reflect the true value of the
company. After they pump up the price, these brokers
dump the stock, the price falls, and investors lose their
money.
. For whatever reason, you have to sell your investment
when the market is down.
Because it is sometimes hard for investors to become experts on various businesses for example, what are the best steel, automobile, or telephone companies investors often depend on professionals who are trained to investigate companies and recommend companies that are likely to succeed. Since it takes work to pick the stocks or bonds of the companies that have the best chance to do well in the future, many investors choose to invest in mutual funds.
A mutual fund is a pool of money run by a professional or
group of professionals called the "investment adviser". In a
managed mutual fund, after investigating the prospects of
many companies, the fund's investment adviser will pick
the stocks or bonds of companies and put them into a fund.
Investors can buy shares of the fund, and their shares rise or
fall in value as the values of the stocks and bonds in the fund
rise and fall.
Investors may typically pay a fee when they buy or sell their
shares in the fund, and those fees in part pay the salaries and
expenses of the professionals who manage the fund.
Even small fees can and do add up and eat into a significant chunk of the returns a mutual fund is likely to produce, so you need to look carefully at how much a fund costs and think about how much it will cost you over the amount of time you plan to own its shares. If two funds are similar in every way except that one charges a higher fee than the other, you'll make more money by choosing the fund with the lower annual costs.
For more information about mutual fund fees and expenses,
be sure to read our brochure entitled "Invest Wisely:
An
Introduction to Mutual Funds" which you can read online
at http://www·sec·gov/investor/pubs/inwsmf·htm or order
for free by calling 1-800-SEC-0330.
To compare mutual fund
costs, try using our online mutual fund cost calculator at
http://www·sec·gov/investor/tools/mfcc/mfcc-int·htm.