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When you invest in mutual funds, you’re pooling your money with other investors to buy stocks, bonds, short-term securities or a combination of these investments. By investing in the fund, you own a small portion of each individual security. Pooling with other investors can help minimize risk and provides an opportunity for diversification.

Mutual funds are an easy way to invest in many different securities at once and at a lower cost than you might be able to otherwise. This provides a level of diversification, which can help minimize how much your portfolio is impacted by issues in the market. Mutual funds are also liquid, giving you access to cash when you need it.

Mutual funds can also help you achieve your specific goals. In general, there are three basic investment objectives:

1. Growth, sometimes referred to as capital appreciation, typically means an increase in the value of your initial investment – for example, if a stock's price rises from $10 to $15
2. Income generally refers to regular payments of interest (generally paid by bonds) or dividends (generally paid by stocks)
3. Capital preservation is the objective of investments whose most important goal is to protect the value of your investment (your capital) rather than increasing the value of that investment over time

Start with the objective of the mutual fund. This determines what role that fund might play in your portfolio and how it aligns with your specific goals. Then review the management style, risks, fees and expenses associated with the fund, all of which can be found in the prospectus. You may also want to look at how the fund’s historical returns compare to the returns of similar funds, though past performance is no guarantee of future results.

There are thousands of mutual fund options that you can choose to add to your portfolio. A financial advisor can help analyze how each fund might help you reach your goals and fit with your overall investment strategy.