Mutual Funds: How to Invest in the Stock Market Without Picking Individual Assets

Introduction: What is a Mutual Fund?

A Mutual Fund is a collective investment vehicle where multiple people pool their money, which is then managed by a professional fund manager to invest in different financial assets: stocks, bonds, commodities, or a combination of them.

In other words, it’s a way to invest in a diversified portfolio without having to pick each stock or bond yourself.

Mutual funds exist in most countries and are regulated by official bodies, providing a level of safety and transparency.

Basic Concepts

Unit of participation: when you contribute money to the fund, you receive “units” representing your proportional share of the portfolio.
Net Asset Value (NAV): the price of each unit, which fluctuates based on the value of the fund’s assets.
Liquidity: generally, you can sell your units and withdraw your money, but timeframes vary depending on the type of fund.

Types of Funds by Risk

Low risk: invest in government bonds, deposits, or fixed-income instruments.
Medium risk: mix of fixed income and large, established company stocks.
High risk: stocks of small or emerging companies, volatile sectors, including commodities or international markets.

How to Invest in a Mutual Fund

Open an account with a broker or investment company:
- You can do it locally or on international platforms if the fund allows.
Choose a fund type based on your risk profile:
- Low, medium, or high risk.
- Some funds are thematic: technology, energy, infrastructure, ESG (environmental, social, governance).
Contribute money:
- No need to buy individual stocks; you buy units of the fund.
- Example: contribute $1,000 and receive X units at a NAV of $10 each → you have 100 units.
Fees:
- Funds charge a management fee (annual percentage of capital) and, in some cases, a performance fee.

Strategies by Investor Level

Beginner

Choose fixed-income or conservative balanced funds.
Goal: familiarize yourself with collective investing, diversify automatically, and avoid high risks.

Intermediate

Diversify among several funds: fixed income, large-cap stocks, REITs, or thematic ETFs.
Monitor performance and adjust exposure according to market changes.
Explore international funds if the broker allows.

Advanced

Combine high-risk, thematic, emerging, or commodity funds.
Evaluate leveraged and inverse funds if you understand the strategy.
Monitor international taxation, currency regulations, and offshore opportunities depending on your country.

Advantages and Disadvantages

Advantages:

Automatic, professional diversification.
No need to pick individual stocks or bonds.
Access to international markets and specific sectors.
Moderate liquidity (depending on the fund).

Disadvantages:

Management fees reduce returns.
Less control over individual investments.
Market risk: even diversified, you can lose money.

Practical Tips

Research the fund’s performance history, but remember past performance doesn’t guarantee future results.
Check the fund’s risk profile and ensure it matches your tolerance.
Review fees and exit costs.
Read the fund prospectus to understand its investments and management policy.

Conclusion

Beginner: start with fixed-income or conservative balanced funds, diversify, and learn how markets work.
Intermediate: combine multiple funds, including international or thematic ones, and adjust exposure according to goals.
Advanced: include high-risk, commodity, emerging, and sophisticated strategy funds, always monitoring risks and taxation.

Mutual funds are an ideal tool for those seeking professional diversification and access to global markets without the hassle of selecting individual assets.

It’s very important to diversify your portfolio to do it well—revisit the oracle to find out what else to invest in and how to do it right.

Glossary

Blue chips: established companies with decades of existence, billions in revenue, product diversification, consistent profits, cash reserves, and if they need financing, banks and markets lend to them because they trust their solvency.

Broker: a platform or financial intermediary that allows you to buy and sell stocks. Some brokers are international (e.g., Interactive Brokers, eToro), and others are local (depending on the country).

Call: a financial contract known as a derivative, whose value depends on a stock. It is the right to buy a stock at a certain price in the future.

Cap rate: capitalization rate, an indicator of the annual return of real estate investment.

Cash flow: monthly cash generated by the property after expenses (rent – taxes – maintenance).

Certificates of Deposit (CDs): "similar to fixed-term deposits, but usually issued by banks or financial institutions in more formal or international markets. They allow investing in local or foreign currencies. They may have fixed or variable interest options, depending on the contract.

Commodities: any basic, homogeneous, tradable product produced in large quantities and traded in global markets. They are used both for direct consumption and for industrial production.

Covered Call: investors holding stocks who sell “Call” options to generate extra income.

Covered bonds: bonds backed by specific assets, lower risk than regular corporate bonds.

ETF: an investment fund traded on the stock exchange like a stock.

Fixed-term deposits: depositing money in a bank for a set period in exchange for a fixed interest rate. At the end of the term, you recover your capital plus interest.

Futures contracts: agreements to buy or sell a certain quantity of an asset at a fixed price in the future.

Hedging: investing in stocks of other types such as precious metals or utilities to balance losses if company stocks fall.

High yield / junk bonds: small companies or those with liquidity problems, high risk, and high return.

Interest-bearing accounts: bank accounts that generate daily or monthly interest on the available balance.

Interest rate swaps: a financial contract between two parties to exchange interest payments on a notional principal. The most common swap is exchanging fixed rates for variable interest rates or futures.

Inverse ETFs: gain value when the index they track goes down.

Joint ventures: partnerships between two or more parties to develop a joint project, sharing risks, costs, and profits.

Leverage: using financing (mortgage or loan) to buy more properties than your capital would allow.

Leveraged ETFs: multiply market movements (2x or 3x), up or down.

Liquidity: in economics, liquidity is the ease with which an asset can be converted into cash without losing value.

Microcaps: very small cryptocurrencies by market cap since they are new or unknown projects. They have the potential to multiply by 100 but also the risk of disappearing overnight.

Mining (Bitcoin): using computers to validate transactions and earn rewards. Miners compete, consume electricity, and receive rewards in BTC.

Mutual Fund: a collective vehicle where multiple people contribute money that a professional manager invests in different financial assets: stocks, bonds, commodities, or a combination of them.

Net Asset Value (NAV): the price of each unit, which fluctuates according to the value of the mutual fund’s assets.

Offshore accounts: accounts opened in another country, used by some investors to access products not available locally or for tax advantages. It’s legal if declared, but each country has its own regulations.

Portfolio: the total set of financial assets (such as stocks, bonds, mutual funds, or real estate) owned by an investor or entity, aimed at achieving financial goals through diversification and risk management.

Put: a financial contract known as a derivative, whose value depends on a stock. It is the right to sell a stock at a certain price in the future.

REITs (Real Estate Investment Trusts): real estate funds that allow investing in large portfolios without directly buying property. They are traded through brokers like regular stocks, and there are even REIT ETFs.

Staking: some blockchains (Ethereum, Cardano, Solana) allow you to “stake” your coins on the network and earn interest. This generates passive income similar to a fixed-term deposit, but with more risk.

Unit share: when you contribute money to a mutual fund, you receive “units” representing your proportional participation in the portfolio.

Validation (Ethereum and other proof of stake): locking large amounts of coins to maintain the network and receive rewards.