I thought that Mutual Funds were safe

Member writes:
In a message dated 10/24/2005 5:06:27 P.M. Eastern Standard Time, X writes:

But any way, I lost on my Mutual Funds? Now I thought that Mutual Funds were safe, I know mutual Funds are traded like stock, should I stay away from Mutual Funds this time? Remember I am focusing on 7 to 10 years from now?


Money Prof:

First of all you don't have a loss on your fund as of yesterday. You had to pay a ( one time) commission to buy it, so you actually made enough profit to cover the commission cost. And you're about even. Bear in mind you're talking about a 5 month time frame.

No, not safe short term. Equity Mutual funds are a pool of money that buys stocks. Depending on the fund usually quite diversified, divided over for example 100+ stocks.

So it moves up and down with the market. I had told you to NOT put any money into the stock market that you weren't going to leave in there long term. The shortest time I recommend is 7 yrs. ( Even that I don't like). BUT, I highly recommend stock funds and index funds IF long term more than 10 years, especially longer term.

Also, you should be dollar cost averaging into funds. In other words money put in every month so money its always averaged. ( you buy more when market is down, less when its up).

My point is if you take any 20 year period for the last 100 years you always made money in the stock market. But if you take a random 1 year its close to a 50-50% chance of a loss. The bottom line is : long term is investing, short term is gambling.