As Kristen says, a key benefit of mutual funds is diversification. When you invest in individual stocks your fortunes rise and fall with that particular stock. Mutual funds let you spread out the risk across multiple stocks according to various themes.

I tend to like broad-based index funds, such as a total stock market index or an S&P 500 index. These funds try to mimic the performance of the stock market as a whole. After all, a majority of mutual funds do not outperform the S&P 500, so you'll probably do better with an index fund. When choosing an index fund it is important to look at the fees charged by the index fund. The management of an index fund is largely passive, so there's little justification for the fund manager to charge hefty fees.

As far as the current turmoil in the stock market is concerned, selling the fund now will lock in the losses without any opportunity to benefit from any recovery. When the market is this volatile, techniques like dollar-cost averaging (investing a fixed amount of money every month) are more effective. So I would recommend continuing to invest in the stock market in general. I can't speak to the particular mutual fund you mentioned in particular.

Nebraska
To answer your question, Mutual funds are designed to make the fund managers rich. The people who invest in them are just suckers.

Nebraska
Run away from this company like a fire at a fireworks company. They do not have your best interests at heart.

Hi Nebraska1 -

Thanks for your question. Mutual funds are a great way to invest in the market because they allow you to buy a whole basket of stocks or bonds (or both) that was put together by an expert. Buy one mutual fund and you're immediately invested in a lot of different companies...buy one stock and all your money is riding on that one company.

But you usually need more than one mutual fund in your portfolio. You probably need a few different stock funds and at least one bond fund. The longer your investment horizon and the more comfortable you are with risk then the bigger your allocation to stocks should be. If you want to use your cash in two to five years then you should conservatively invest your money. Most of it should be in bonds and cash. If you're investing for the long haul - say 30 years - then most of your money should be stock funds. Here's an article with advice on how to build a long-term portfolio: http://blog.filife.com/retirement-advice-for-my-friends-peers/

The markets are a little wild right now. But yes - you should probably keep investing. If your State Farm Fund is down and you sell it - you'll lock in your loss. (But as I said above, make sure that your State Farm Fund is part of a diversified, long-term investment plan.) Read Dave's recent article about what to do with your investments now here: http://blog.filife.com/stay-calm-when-others-panic/

Pretty soon, we'll be publishing a longer guide on mutual funds and asset allocation. Stay tuned...