One day in 1884, Charles Henry Dow averaged the closing prices of 11 stocks he considered representative of the U.S. economy in a paper that preceded The Wall Street Journal.

Probably the most broadly based market index is the Wilshire 5000 Total Market Index. Originally comprising 5,000 stocks, the Wilshire 5000 now includes the stocks of more than 6,700 publicly traded companies. This market capitalization-weighted index tracks the overall performance of stocks actively traded on the American stock exchanges; the companies are all headquartered in the United States.

Basically, indexes are imaginary portfolios of securities that represent a particular market or section of the market. Each index has its own method of calculating a change in its base value, often expressed as a percentage change. Thus, you might hear that an index has risen or fallen by a certain percentage. Although you can’t invest directly in an unmanaged index, you can invest in an index mutual fund that attempts to mirror a particular index by investing in the securities that comprise the index. The performance of an unmanaged index is not indicative of the performance of any specific investment.

Employer-sponsored retirement plans are more valuable than ever. The money in them grows tax deferred until it is withdrawn at retirement. And contributions to a 401(k) plan actually reduce your taxable income. But figuring out how to manage the assets in your retirement plan can be confusing, particularly in times of financial uncertainty.

All the stocks in an index have at least one element in common. They might trade on the same stock market exchange, belong to the same industry, or have similar market capitalizations. Some of the more widely known indexes are the Dow, the S&P 500, the Nasdaq Composite, the Wilshire 5000, and the Russell 2000.

Dollar cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of the fluctuating prices of such securities. You should consider your financial ability to continue making purchases through periods of low price levels. Dollar cost averaging can be an effective way for investors to accumulate shares to help meet long-term goals.

A guaranteed interest contract offers a set rate of return for a specific period of time, and it is typically backed by an insurance company. Generally, these contracts are very safe, but they still depend on the claims-paying ability of the company that issues them.

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A mutual fund is a pooled investment. When you buy shares in a mutual fund, you are buying shares in a professionally managed portfolio of stocks, bonds, or other securities.

Investment managers are responsible for buying and selling securities according to specific investment objectives, which are identified in the prospectus. Buying shares of a mutual fund can give you built-in diversification. A single mutual fund holds many different securities. When you buy into a mutual fund, investment professionals manage your money. They carefully research, select, and supervise all the assets in the mutual fund. This frees you from having to select and track individual investments. When you invest in mutual funds, you get access to some of the finest investment minds on Wall Street.

They like having a professional manager oversee the day-to-day decisions that a changing stock investment involves and see that as a distinct advantage. A good manager, they might argue, has access to information that would cost them an exorbitant amount, even if they had the time and inclination to do the work themselves.

Finally, many mutual funds offer low initial investment amounts – some as low as $1,000, and in other cases, even less. Mutual fund fees also vary and can be lower than other investment alternatives. Mutual funds are offered by prospectus, which contains complete information about the objectives, risk, fees and minimum investment amounts. It should be read carefully before investing. All in all, mutual funds offer a variety of benefits. In many cases, they are ideal investment vehicles for experienced and beginning investors.

When one security in a fund drops, an insightful fund manager may have included stocks that could cushion or offset that loss. Diversification is a big selling factor for mutual funds; there is, in fact, relative safety in numbers. But that’s not to say that an investor couldn’t diversify via his own stock selections. Remember that diversification cannot eliminate or guarantee against the risk of investment loss; it is a method used to help manage investment risk.

Growth and income funds attempt to achieve both long-term growth and current income. They invest primarily in high-yield common stock, preferred stock, and convertible debt (bonds) to generate both growth and income. Because they include a mix of investments, these funds are typically less risky than growth funds.

International and global mutual funds offer diversification into international stock markets. International funds invest only in foreign securities. Global funds, on the other hand, can invest in foreign and U.S. securities. The additional risks associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different that those in the United States.

Sector funds invest in specific industries or sectors of the economy, such as communications, aerospace and defense, or health care. While they may be diversified within a particular sector, they lack broad diversification. This increases their investment risk. These funds typically seek long-term capital appreciation.

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If you are a beginner and an amateur in the world of mutual fund trading, it is advised for you to start with small amounts of money.

But what escapes media attention and subsequently ours are the stories where people lose most of their life’s savings by going for the kill in the stock market. We love success stories and so we choose to close our eyes and turn a blind eye to the not-so-successful ones. Making money in the stock market can be relatively easy if you have perseverance, enthusiasm and more importantly the aptitude and the knack to predict the volatile stock market.

Most market timers work on the policy of buying when the stock is low and selling when the stock is on its way up. Many market timers look to make a number of small profits by changing their positions every few minutes than waiting for longer periods in the hope of making a profit. However, there are market timers who operate on longer timeline but there is more risk involved here as the insiders feel that the stock market cannot really be predicted over a longer period of time.

Movies and books show a rosy picture of people just buying some shares and its prices skyrocketing. Surely it happens, but only in fairytales. The amount of study and research involved is often not seen. So, if you want to try your hand at market timing, be sure you have done your homework thoroughly.

By studying the market indexes and learning the signals of distribution days and follow through days, you can learn to time the stock market. Once you learn this essential skill, you have more of an opportunity to pick winning mutual funds and are less likely to be buying the funds when the market is working against you.

To trade mutual funds and stocks successfully, you must first understand the stock market stages that individual stocks or mutual funds and what the overall market go through. These cycles tell you if you should be long, short or in cash. Once you are able to identify what stage it is in, you can then trade accordingly to those characteristics. After a while you won’t even have to think about whether you should be long or short. You will know, without question, exactly what you should be doing NOW. You will either be focusing on long positions, short positions, or you will stay safely in cash – just by glancing at a chart!

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