A mutual fund pools money from many investors and buys a basket of securities chosen by a professional manager. You buy shares of the fund itself; each share represents a slice of the entire portfolio.

Why use a fund?

• Diversification. A single fund share might own 100+ stocks. One company's blowup hurts much less.
• Professional management. A research team makes the picks. You don't need to read 10-Ks.
• Affordability. Many funds let you start with $250–$3,000 — far less than building a diversified stock portfolio yourself.

What to watch out for

• Expense ratio. Annual fee as a % of assets. Index funds run 0.10–0.30%; actively managed funds 0.70–1.50%.
• Loads. A "front-end load" is a sales commission charged when you buy. "No-load" funds skip this.
• Tax efficiency. Funds that trade a lot generate taxable capital-gains distributions you owe even if you didn't sell.