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Mutual Funds: the Long Haul

Updated: Jul 12, 2021

If you have gotten to the point in your financial life where you are out of debt and have 3 -6 months of savings set aside it is probably time to start investing for the long haul. It is always wise to get out of debt as quickly as possible. It is such a wonderful feeling to wake up and not be stressed about money. I know that it is almost impossible in today’s financial climate to not have debt at some point, but it should always be a top priority to strive to be debt-free. That means striving to pay off your cars, credit cards, student loans, and other liabilities before you invest in mutual funds. You can work on your mortgage while you invest over the years. If your financial house is in order then please, seriously consider the rest of this article.

If you are considering investing in the stock market in one way, shape, or form you've probably heard the term "mutual fund." If you are like I was, you probably have no clue as to what the term actually means in terms of financial benefits or even exactly what a mutual fund is. Hopefully, reading this will clear up a few of the details for you so that you can move on to make informed decisions about where and how to invest your money. Actually, I would recommend that you find a financial advisor to manage your IRAs, 401K's and 403B’s. You can never do what a large financial brokerage house can do. They have so much technology and have so much expertise in the area of investing your money. You are not able to compete with them with your money.

I should begin by pointing out that there are no 100% risk-free methods for investing. That being said, mutual funds have lower risks than many other investment options, which makes them an attractive purchase for those that are unsure about investing. In fact, there are mutual funds that contain many more mutual funds. Remember this, for the purpose of savings, mutual funds often have much better rates of return than the average savings account at your local bank, and the risks are minimal in this type of investment, particularly compared to other riskier ventures.

You are investing for the long haul adding money each month. That is called dollar-cost averaging and also reduces the risk if the markets take a turn for the worse. The Rate of 72 Rule states that if you divide 72 by the annual rate of interest you get an approximation of how long it will take to double your money. So, if a mutual fund is averaging a 7% annual rate of return and you divide 72 by 7 you get about 10.3 years to double your money. And that assumes that you are not adding money on a monthly basis. So, think about how much quicker you would double your money if you were adding to your Mutual Fund on a monthly basis.