To minimize all potential—and admittedly inevitable— losses when investing, it is best to spread your risk potential by buying shares of multiple companies in different industries. You can do your research on a variety of firms that seem to have growth potential; however, you would have to spend time researching their history and financial statements. That may sound fun to an accountant or auditor, but the layman usually doesn’t have the time or educational foundation to make the same level of assessments.
You may admit your lack of knowledge regarding investing and consider hiring someone else to invest your money for you as possible in a Hedge Fund. Hedge Funds are firms that will take your money and invest it in high-risk, high-return portfolios, while, of course, charging you a management fee and a performance fee. Some argue, only half-jokingly, that going this route makes hedge fund managers richer than you’ll ever be. That is why many people, like Warren Buffet, chose to cut out the middle man and invest in an S&P 500 Mutual Fund for maximum return on interest (ROI).
In 2008, Buffet grew tired of the kind of exorbitant fees that hedge funds charge clients and, so made a one-million-dollar bet with Protégé Partners LLC.Buffet declared that the index fund of his choice would perform better than an equal investment made using their firm. Nearly a decade later, Buffet’s Vanguard’s S&P 500 Admiral fund (VFIAX) garnered 125.8%, while Protégé Partner saw a measly 36% return, proving that the average person does not need them.
Vanguard provided some of the original mutual funds that required a minimum investment of anywhere between $1,000 and $5,000. Since then, other funds have opened up to the public like Fidelity that have removed all barriers to entry whatsoever. Now, anyone can choose a mutual fund of their choice, with the added benefit of having mutual funds that focus on different markets. Some funds allow you to invest in foreign or domestic industries, while others let you invest in small or large firms. There are some funds that enable you to put money in a mix of every kind of industry you can think of, all with low fees.
Before dipping your toe in all these different options, it is best to lay a firm foundation that will have little risk involved. It would be best to subtract your age from 100 and then turn the result into a percentage. Your answer is how much you should invest in mutual funds. Whatever portion is left from that equation should be invested safely in something like the US bond market, which is by far the safest investment out there given that the government backs it. Aside from that, you can have at it.