Figure 1 shows how time can help build your investment portfolio. This graph is a hypothetical illustration and is not intended to represent the expected earnings of any investment. Some people invest in individual stocks or bonds, but many use mutual funds. This section provides a basic introduction to mutual funds and how they can be used. This financial cushion should be placed in a safe, easily accessible investment such as a money market fund, unless you have substantial assets.
Some people rely on a home-equity line of credit for an emergency fund.
A mutual fund is a company that pools money from many investors and purchases securities on their behalf. Each investor shares proportionately in the income or investment gains and losses that the fund's investments produce. Each mutual fund has a manager, or investment adviser, who manages the fund to meet its investment objectives, such as long-term growth, high current income, stability of principal, or some combination of the three. A single mutual fund may hold securities from hundreds of different issuers, something few investors could do on their own. This broad diversification sharply reduces the risk of losing money because of problems with any single stock or bond.