Managed Mutual Funds

• An actively managed mutual fund employs a money manager, or a team of money managers, to select the stocks that they think have the greatest potential for appreciation. The track records of these funds, and the money managers that run them, varies quite a bit, so it is important to look at the historical returns over a number of different time periods. When evaluating the performance of a managed fund, look at its performance during both up and down periods in the market. Also look at the charges and expenses associated with the fund, since those charges can really add up over time.
  
  

Index Funds

• Index funds do not attempt to time the market, and they do not often buy or sell stocks. An index fund works by holding all of the stocks in a particular index, such as the Nasdaq 100 or the S&P 500. The only time the fund buys or sells a stock is when the makeup of the actual index changes. This makes index funds very tax efficient, since they generate few capital gains through trading stocks. Over the long term, index funds have outperformed their actively managed counterparts.
  
  

Dollar Cost Averaging

• Dollar cost averaging is a term every investor should know, and it simply means putting the same amount of money into a fund month after month, no matter what the stock market is doing. For instance, you could set up an automatic transfer on the first of every month from your bank account to your favorite mutual fund. The money goes in, month after month, regardless of whether the stock market is high or low. This strategy automatically means that your money buys more shares when the market takes a tumble and fewer when it is riding high. Over the long term this strategy helps you accumulate more shares at a more favorable price than if you had simply invested all your money at once.
  
  

Pay Yourself First

• One of the most common reasons people cite for not investing is not having enough money left over at the end of the month. While that is certainly a reason not to invest, you do not have to let that lack of funds stop you. To get started in investing, use a "pay yourself first" strategy by treating your investment account as just another bill that must be paid. If you have a monthly transfer set up between your bank account and a mutual fund, you can force yourself to save, and force yourself to live on the remaining money. You can start off as small as you want; some mutual funds let you put in as little as $25 or $50 a month. The key is to get started. Once you get started you can ramp up your savings over time, as you become better at budgeting and managing your money.