Im a newcomer and wondering how do diversified mutual funds work?

Question

how much do I need to invest to actually profit?

Answer 1

The first responder gave you an excellent answer, but I would like to elaborate a little. No load mutual funds indeed have somewhat high minimums to begin investing, some $1000 and some $2000 and some even more. If you do not feel comfortable investing so much all at once, there are funds with a front end load of about 5.75% where you can begin with a lesser amount of about $500. American Funds specifically. There are also closed end funds and index funds that trade like stocks. You buy and sell them just like a stock. You can buy 1, 5, 10, 100, or 1000 shares. There is no large minimum. There is however the brokerage fee. $7.00 to buy and $7.00 to sell at Scottrade.

There are many different kinds of mutual funds that you can buy. Ones that invest in large cap growth stocks, small cap growth socks, bonds, foreign stocks, you name it and there is probably a fund that invests in it.

Many funds do not perform too well, about 70%. So you have to be very selective in choosing the fund or funds that you wish to invest in. Morningstar rates funds from 1 star--poorest--to 5 stars--best, in their category. Yahoo finance carries these Morningstar ratings. But these are only open ended funds. For some odd reason they do not rate closed end funds.

Enclosed is a link to closed end and index funds.

http://www.etfconnect.com/

Since you are a newcomer, you will benefit from going to your library or book store and getting "Mutual funds for Dummies"

Many mutual funds have shown a long term annual return of better than 10%. That should give you an idea on how much profit you might make.

Answer 2

Basically you are buying a 'basket' of many stocks. It can be as little as 12 or up to 100. That's usually how these funds are. They may be invested entirely in equities, or have a mixture using equities, bonds and cash/cash equivalents.
You can start investing with just $1000. To profit, just make more than the sales charge.

Answer 3

Do not buy load funds - period. Can profit investing any amt. Don't need to know how they work at all. Need to get started investing by opening an account at TDameritrade; schwab.com or wherever. Near end of yr so time to fund an IRA. If it were complicated millions could not do it.