Why Rich People Love Mutual Funds (And You Should Too)
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The number one way regular people build wealth involves a term that very few people understand: mutual funds. And if that financial buzzword makes your brain shut down, like your friend explaining settlers of Catan, I get it. How is two sheep and a wheat worth one brick, Seth? Make it make sense. It's not called sheep, it's called wool. Who cares? So today I'm going to break down mutual funds in simple,

clear terms. No fancy Wall Street lingo required. Heck, no Duolingo required. And by the end of this video, you'll know exactly what a mutual fund is, how it works, and the four types of funds you need in order to build wealth with peace and confidence. So what the heck is a mutual fund? Well, imagine a big bowl sitting on the table. Maybe I put in some money.

you put in some money. Your cousin Karen throws in a few bucks, and then the manager at Hot Topic chips in, and the sweaty guy behind you in line at Dunkin' Donuts tosses in a couple of wet bucks, and a bunch of other people chip in, including one-third of the Blue Man Group.

So this bowl is now mutually funded by a group of investors, which is all of us. Hence the name mutual fund. Then there's a fund manager. It's a real person or a team whose job it is to take that money and go shopping for investments. Now, these investments could be stocks, bonds, whatever the goal of the fund is. And what they buy tells you what kind of mutual fund it is. If they buy bonds with that money, that's a bond mutual fund. If they buy international stocks, that would be an international stock fund.

mutual fund. If they buy growth stocks, companies like Microsoft, Amazon, Costco, that's a growth stock mutual fund. Makes sense, right? It's all coming together. But how does this make money for you, the hot topic manager, and the sweaty guy from Dunkin'? Well, three ways. The first one is dividends. If the companies inside the fund pay out some of their profits to you, the shareholder, that's in the form of a dividend. It's

It's like a little reward to shareholders for holding on to the stock for a while. And in most cases, dividends are paid quarterly and in cash. And you can either pocket the money or reinvest and buy more shares. The second way you can profit from your mutual fund is share price growth. If the value of the companies inside the fund go up, so does the value of your shares. But you don't get to access that money until you sell your shares. Until then, your profits and losses are merely on paper, not in your pocket.

Which brings us to the third way to make a profit from mutual funds, capital gains. This is the money paid out when your investment is sold for a higher price than what you originally paid for it. But remember, this is not a get-rich-quick plan. Mutual funds are long-term investments, and that's the way real investing should be.

It's a marathon, not a sprint. The goal here is to consistently put money in, let it grow over time, and not touch it until you're ready to take it out in retirement if these investments are in a retirement account like a 401k or a Roth IRA. And here's why mutual funds are the key to building long-term wealth. Remember the fund manager from earlier? The guy who's picking the investments for you and Karen and the Blue Man Group guy?

Well, they can use the money in the bowl to buy stock in dozens or even hundreds of companies at once. That's called diversification. And it's one of the smartest ways to lower your risk and still grow your money. Here's what I mean. Let's say you hear about some new tech stock that's expected to blow up in the next year. So you buy a bunch of shares in that one company, hoping you can make big money by buying low and selling high.

But two months after you buy, the CEO gets caught doing something immoral and the value of the shares tank. Well, now your investment is revealed for what it truly was: a gamble that didn't pay off. But with mutual funds, your money is spread out across lots of companies like 90 to 200 or more. So if one company tanks, the others help keep your investments afloat. And that's why mutual funds are the best way to invest for retirement and why I never recommend buying a single stock of one company.

And look, I know it can be tempting to try to pick the next Nvidia or GameStop so that you can get rich quick. But really, that's closer to gambling than investing. And it's not a smart way to build wealth. When Ramsey Solutions studied over 10,000 millionaires, you know what they found? They didn't build their wealth by day trading or riding the crypto roller coaster. They simply were investing consistently over a long period of time, mostly through mutual funds inside of a retirement account.

And that's why if you're serious about building your first million or your first 5 million, this is where you start. So how do you invest in mutual funds? Before we get to that, let's talk about something else that can help you grow your money, which is a high yield savings account like the one offered by Laurel Road, one of the sponsors of today's episode. If you've got a lot of money in a regular old dusty savings account earning dismal interest, it is time for an upgrade. Because with Laurel Road, your account balance earns top tier APY.

So you could be earning some good interest on that emergency fund or short-term savings. Plus, with Laurel Road, there's no minimum balance required to open an account, your deposits are FDIC-insured, and there's no hidden monthly fees. Learn more by going to laurelroad.com/george or click the link in the description below. And here's something else to think about.

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You'll even get personalized reports so that you know what they removed from where and how much time they've saved you. And with my special link, you can get a plan that comes out to about nine bucks a month. That's 20% off. So go to joindeleteeme.com slash George or click the link in the description to get the deal. Okay, back to the question at hand. How do you invest in mutual funds? Well, it's actually pretty simple.

All you need are a good old boring tax advantage retirement account like a company 401k and a Roth IRA. This is hands down the best place to start investing. But here's where most people get confused and screw it up. A retirement account is just an empty tax advantage shell. You've still got to choose investments to purchase inside of it. So what mutual funds should you choose? Well, you should look for growth stock mutual funds that have a long term track record.

These are funds that focus on companies expected to have above average growth. They may be more volatile in the short term, but they also have the potential for higher returns over the long haul, making them a great option for retirement investing. And to add one more layer of risk reduction, it's wise to diversify evenly across four different types of mutual funds. First up, you've got growth and income funds.

These are funds invested in big established companies like Procter & Gamble, Johnson & Johnson, and Coca-Cola. You might see them listed as large cap, which is short for large market capitalization, which is just a fancy way of saying huge corporations valued at $10 billion or more. These companies might not grow as fast as others, but they're stable and steady, and they're a great backbone to your portfolio. So we've got growth and income. Next up, we've got growth funds. Now, you might see these listed as mid-cap.

These investments focus on companies with the potential for rapid growth, even if the companies may not be as large or established as the ones your mom and dad grew up with. These might be companies like Square, Shopify, or Zoom. Next up, you want some aggressive growth funds, which would be small cap. Now, these are the wild child roller coaster ride of your investments. There could be some high highs and some low lows.

Small cap would be companies like Roku, GoPro, Sonos, Yeti, Dutch Bros, Krispy Kreme, and Planet Fitness. And finally, to round it out, include some international funds. It's smart to keep some of your eggs in the international basket, investing in large non-US companies like Alibaba , Samsung , and Nestle . This geographic diversification gives you a good buffer in case the US economy takes a hit.

And we saw this happen recently when the U.S. stock market dipped, international saw an uptick. So a solid strategy is to split up your investing four ways across those types of funds. So if you're investing $100, you would put $25 into each type of fund. This gives you diversification across company sizes and global markets so that you're not putting all of your eggs in one basket.

or one bowl. This is the same portfolio that I have in my retirement account, that Dave Ramsey has in his retirement accounts, and that plenty of other millionaires have in theirs. So this stuff works. And that's basically it. A mutual fund is just a way for a bunch of people to pool their money together, hire a manager to invest it, and spread the risk across lots of companies instead of just one or

It's simple, it's smart, and it's how thousands of everyday millionaires have built their wealth. If you want a deeper dive on mutual funds and all things investing, be sure to check out my free investing guide. I'll drop a link to it in the description below. And if you're just getting started investing, keep watching this next video on investing for beginners. You can also click the link in the description to check it out. And don't forget to like, subscribe, and share this video with the other two guys from Blue Man Group. They need to see this. Everyone deserves compound growth. Thanks for watching. We'll see you next time.