What’s a mutual fund, and is it really like sushi? In this video for investing novices, you’ll find out how similar the two products really are.
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A mutual fund is like eating sushi. Okay, it’s like eating a certain kind of sushi.
Imagine that you just walked into a sushi restaurant. First of all, the chefs and servers yell at you, “Irra-shai-mase!”
But you don’t find that the least bit confusing or frightening, because you’ve been around and you know it just means, “Welcome to our restaurant.”
So you belly up to the sushi bar, and you order the omakase, and you sit back and wait for the deliciousness to begin. “Omakase” means “entrust,” which in your new favorite sushi bar loosely translates to “chef’s choice.” You’re entrusting the sushi chef to create a special multi-course menu for you with samples of a large array of foods, and usually the best and freshest fish in the house that night.
Now, when lots of regulars at your favorite sushi bar order this way, the chef can buy lots of different ingredients and give the customers much more variety than they would get if they just ordered piecemeal off the menu.
That’s sort of how mutual funds work. When you have a modest amount of money to invest, you might only be able to afford a few shares of individual stocks. With a mutual fund, lots of people put a modest amount of money in, creating a large amount of money that can invest in many things. Then each investor gets to enjoy the benefit potential of participating in a large colorful platter of diversified investments.
The portfolio manager is the sushi chef. The mutual fund: the omakase. The portfolio manager selects the mix of investments and uses the money through all the investors that bought into this fund to buy the various diverse investments he chooses. The investors can then potentially make money if they sell the shares of their mutual fund for more than they paid for them.
Oh, and just like each sushi chef has their own style and approach to cuisine, each portfolio manager has their own style and approach to investing. So, you’ll want to research the fund and the manager before you pick the mutual fund, to make sure that you choose one that’s in line with your investing palette. After all, omakase of octopus and sea urchin probably isn’t for everyone.
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