If you have been investing in mutual funds for a long time now, you have an idea on how high yield mutual funds require high levels of current income. You should also have capital appreciation potential but this is only a secondary goal.

High yield funds mainly invest in securities that come with lower credit qualities. They may offer higher income but they also have the tendency to be very volatile. Therefore, in order for you to diversify your portfolio, you need to also consider high yield mutual fund. You can do this by observing the following steps.

1. Determine the risk tolerance of the fund that you are investing in. You should also consider the time frame for you to meet your investment goals. You must think of achieving this much as this time.

If you set a deadline and you seem to be very far from reaching it, then this means that you are doing something wrong. At least, with a goal, you are guided to get to that point you want to reach with your investment.

2. High yield funds should also not be your only holdings. Do not put all your eggs in one basket.

Sure, it's practical to invest but you need to invest smart as well. Seek the guidance of a broker or a financial adviser. Read as much as you can on investment. By informing yourself on the subject, you know exactly where to put your eggs in. Allocate only part of your investment to high yield funds but make sure that you have something intact just in case it falls.

3. At the back of your mind, remember that these types of funds loses a lot of capital whenever the economy slows down or the company cannot repay the loan.

These are risks you have to consider so if ever the investment backfires, you are on stable ground. At least with this in mind, you wouldn't be as shocked or unsteady when you hear the news that the investment you have been banking on crumbles.

4. You also have to ask yourself whether you want to go for the load or the no-load mutual fund.

With the former, you can get a lot of advice and guidance from professional brokers and advisers. However, the no-load funds do not allow you to avoid the sales charges and this lets you put in more money than what you have originally intended to put into.

Keep in mind that you don't invest in mutual funds to speculate in stocks and bonds. You invest in them because funds were designed as a way for millions of average folks to get a piece of the action in stocks and bonds with professional money managers making the investment decisions. Your job is to simply decide how much money to invest in each of the 3 basic types of funds, and then to pick the best investment options or funds in each area to fit your risk profile. Here are some tips, because 2011 and beyond could be a little tricky.

In order to really make your money grow over the years you need to invest in stocks. The average person's best investment options in this department are equity (stock) funds. Equity funds range from aggressive growth funds that pay zip in dividends but can go up like a rocket in good economic times... to blue-chip equity-income funds that invest your money in large corporations that pay steady dividends with milder fluctuations in stock price. Since the higher a stock (fund) price soars the harder it falls, for 2011 and beyond I'd invest my stock money with the more conservative equity-income funds. It's nice to get a 2% or 3% yearly dividend when you can hardly find 1% at the bank.

The second basic type of mutual funds is bond funds, and for 98% of the people they represent the best investment options for putting money into bonds. Millions of Americans invest money in bond funds, but few understand bonds, which is what these funds invest your money in. Here we keep it simple and go to the bottom line. If you want details, I've got a number of bond articles that go there. Simply said, you should invest money in bonds (funds) because they pay higher interest income than you can get elsewhere, and tend to balance out your overall investment portfolio.

Traditionally, bond funds can offset some losses from stock investments because they have often tended to be one of the best investment options when stocks were out of favor and in the dumps. In the bond department you can be aggressive or more conservative as well. For 2011 and beyond I would suggest you go conservative again because our economy and interest rate situation are precarious at best. Interest rates are near record lows and have been falling since the early 1980s. The economy is still struggling to grow with high unemployment.

What this means to you when you invest money in bond funds: when interest rates head back UP, SOME bond funds won't be your best investment options. But remember, you need to invest money and keep it invested for the longer-term. You are not trying to speculate, but still need some money in these funds for balance. Your best investment in the bond department for 2011 and beyond: intermediate-term bond funds vs. long-term funds. The latter are too risky and will get burnt when interest rates go back up.

That takes us to the third and last of the basic investment options for funds and investing in general. Money market funds are very safe investments and pay interest income based on prevailing interest rates, which were historically low heading into 2011. Don't avoid these safe investments because they have one redeeming characteristic other than safety: when rates go back up the interest they will pay will automatically follow suit.

So, yes you should invest money in mutual funds, now and in the future. The year 2011 will present challenges, but where else can you invest in stocks and bonds with professional money management working for you at a modest cost? Your objective should be to invest money and make the best of it. Your best investment options as an average investor haven't basically changed much in over the past 40 or so years. You just need to focus on where to invest your money in funds so you can stay out of serious trouble when times are rough. Over the longer term, that's the best you can do as an investor

Jason Kelly, the author of this text entitled The Neatest Little Guide to Mutual Fund Investing is a1993 graduate of English Language from the University of Colorado at Boulder. Kelly worked for several years at IBM's Silicon Valley Laboratory, where he wrote articles and books that won him the Society for Technical Communications Merit Award. He moved from writing about computers to writing about finance, and found his niche in the stock market.

Kelly says there are more and more mutual funds, as more and more people understand that mutual funds are the best place to put money, revealing that these include the good and the bad; the highly secure and the very risky. He illuminates that to find the funds that are right for you without spending a lifetime trying to become a market maven and finding yourself in graphs and charts, what you need to do is to spend a little time with this text that will lead you through the mutual fund maze with wit and wisdom.

Kelly says this text tells you concisely the different kinds of mutual funds; how to choose your own goals and decide your own risk level; how to spilt your mutual fund investments to reflect your wants and needs; how to quickly learn which funds are the best of their kind; how and where to buy funds at the lowest price; how to spot hidden charges; how to track performance; how to know when to sell; how to make funds work for you in retirement, etc.

This author educates that the ten steps to investing in mutual funds are learning what a mutual fund is; choosing your goals; choosing an acceptable risk level for your goals; deciding what allocation is right for you; matching your allocation to fund categories; researching the funds; selecting your funds; purchasing your funds; tracking your funds; and selling your funds.

Structurally, this text is segmented into seven chapters. Chapter one is entitled The best investments you can buy. According to Kelly here, "Mutual funds have become the choice of millions of investors across the world. Today you can select from over 8,000 funds - far more selections that you'll find on the New York Stock Exchange.... A mutual fund is a gathering of money from investors with a common objective. The 'mutual' part is the common objective, and the 'fund' part is the money. When you invest in a mutual fund, you put your money in a pot with other people's money. The fund manager uses all of it to buy stocks, bonds, and money market instruments. In exchange for your money you're given shares in the fund."

This expert says a share's price fluctuates with the value of what the fund owns, adding that if you send $100 to a fund whose shares are worth $10, you will own ten shares. "If the value of the stocks, bonds, or money market instruments that the fund owns increases, the price of the share increases and so does your investment. Say, for example, that the price of each share rises to $11. Your initial $100 will have turned into $110 because each of your ten shares is worth a dollar more. Of course, it works in the other direction too. But more on that latter," adds Kelly.

He explains that the price of each fund share is called its "net asset value" or "NAV" for short and at the end of every day, the net asset value is determined by dividing the value of a fund's investments by the number of shares sold.

According to Kelly, the most common funds are called Open-end funds and the other type of mutual fund is called Closed-end. This author explains that whenever somebody sends money to an open-end fund, he or she purchases shares in the fund that are worth that day's net asset value, plus a sales commission if there is one.

He adds that an investor can sell shares back to the fund for the current net asset value at any time. As for the closed-end funds, Kelly says these sell a limited number of shares, adding that if you want to but shares in one of these funds, you need to buy them on the stock market from somebody who already owns them.

Chapter two is based on the subject matter of preparing to invest. According to this expert here, "With mutual funds, as with everything else, there are certain things everybody should understand. You need to know how to steer before you can drive on the freeway....Nothing else matters until you know why it is that you're willing to part with money from your daily life to buy something that brings you no amount of pleasure. An investment's only value lies in what it is able to eventually buy for you. In and of itself it has no worth. That means you have to know what it should eventually be able to buy for you, and when."

Kelly says there are three basic mutual fund objectives, and these are growth, income and stability. He stresses that every fund strives to achieve some combination of the three, adding that some funds focus exclusively on one objective, others concentrate on one objective while devoting a portion of their money to the remaining two, and still others mix the three objectives evenly.

"Growth, income, and stability are like the three primary colours. They can combine to create any desired variation. Each of the three objectives focuses on one of three asset classes. The asset classes are stocks, bonds, and the money market. There is a risk with any investment that it will lose money, and the three asset classes have varying degrees of risk associated with them," adds this author.

In chapters three to five, Kelly analytically X-rays concepts such as a fund for every occasion; investing in the right funds and tracking your funds.

Chapter six is entitled Other investment considerations. This chapter covers tax issues related to investing in mutual funds, special retirement accounts available to you and ways to consolidate your investments. This author explains that taxes are probably the most tedious part of mutual fund investing, adding that taxes are probably the most tedious part of life in general. Kelly educates that a capital gain is the profit you receive when you sell an investment for more than what you paid, while a capital loss is the amount of money you lose when you sell an investment for less than what you paid. According to him, "Capital gains are taxable income and must be reported to the IRS on your annual tax return. Capital losses are deducted from your annual income and are also reported on your tax return."

In chapter seven, he discusses the concept of helpful tools, listing 20 great fund companies and their phone numbers.

Stylistically, it is not an exaggeration to assert that this text is a success. Despite the technicality of the language caused by the technicality of the subject matter, Kelly is able to achieve simplicity through proper explanation of concepts, which also makes the text highly didactic.

The text is also logical in presentation and elaborate in research as exemplified by fantastic real-life illustrations. Kelly makes generous use of graphics or graphic embroidery to achieve visual reinforcement of readers' understanding.

I think the title "The Neatest Little Guide" of the title of the text is an understatement in that what is offered in the text is more that just a little. Probably this author employs this technique to convey intellectual humility. However, some concepts are repetitive in the text. Maybe Kelly deliberately uses this style to lay emphasis and ensure long memory on the part of readers.

On the whole, the text is fantastic. It is a must-read for all those who want to achieve success in mutual fund investing. It is simply irresistible.

If you pay any attention at all to the workings of Wall Street, then you have heard of the term diversification. This is a term that means spreading one's money around the market. Many investors do this as a way of spreading their risk around. Over time, this has been shown as one of the best ways to make the most money in the stock market.

What Is A Mutual Fund?

A mutual fund is the primary way that investors can use this diversification strategy. It is a vehicle that allows investors to have their money spread around the market for them. Basically, the investor puts their money into the fund, and the fund manager takes that money at places it into a number of different investments for them. This is done so that the collapse of any one particular investment does not cause the downfall of any investor's entire portfolio.

Why Not Individual Stocks?

Some people still think of the stock market as a place of individual stocks. In a way that is still how it works. You are able to invest in individual companies if you so choose. The only problem with this individual stock picking game is that you stand the risk of putting all of your money into a sinking ship. Take the example of investors who put their money into Enron stock. If they had put most or all of their money into this one stock, then they likely lost most of their money. However, if they had decided to instead put some of that money into a mutual fund, they would likely not have been hurt by the downfall of Enron.

Other Benefits

Another benefit that many mutual funds offer is something known as dividends. These are payments that are made out to investors every quarter. These dividends come from the extra money that companies have left over after they have paid their expenses. They give much of that money back to investors as a way of rewarding them for owning part of the company. With a mutual fund, the investor owns several small pieces of many companies. This means that they may be collecting small dividends from many companies. It is just an added bonus for leaving your money were it is. You are getting paid for doing nothing! Many of the funds also allow you to automatically reinvest the dividends that you receive. In this way, you end up owning even more of the mutual fund, and your dividend money starts to grow dividend money. This cycle is repeated over and over, and it has made some people very wealthy indeed.

Mutual funds are something that all people should consider over their individual stock picking. You never know when you might end up with the next Enron on your hands.

The dividends and interest earned by a mutual fund on its investment is the fund's dividend (income). Balanced and Equity Income funds usually distribute dividends to shareholders quarterly, i.e. March, June, September and December. When a fund sells an investment security for a higher price than originally paid, the fund has a capital gain. A capital loss is realized when the fund sells an investment security for a lower price than originally paid. If the investment security is held by the fund for more than one year, the gain or loss will be a long-term capital gain or loss. When the investment security is held by the fund for less than one year, the gain or loss will be a short-term capital gain or loss. Gains and losses are netted together and when the fund has a net gain, that gain is usually distributed to the share holder once a year (November or December).

By law, mutual funds income and realized capital gains must be paid out to shareholders. These distributions are taken from the portfolio assets which is why the net asset value is reduced by the same amount as the distribution. Example: A distribution value of $0.15 will be given all shareholders on November 15. The net asset value on market close of November 15 will be reduced by $0.15 plus or minus that day's performance.

Shareholders can either purchase more shares to increase the number of shares owned by reinvestment or they can receive full payment in the amount of the shares owned distribution value.

The net asset value (NAV) of a mutual fund is the same as the share price because they do not trade on the open market. The fund company determines a share price by dividing the total current market value of all the cash and securities in the fund's portfolio, minus any liabilities, by the number of outstanding shares. In addition, the mutual fund's share price is further reduced by the amount of distribution to shareholders.

The daily net asset value changes are known as the performance of the mutual fund. The percentage of performance is a gain or loss when the fund's net asset value is more of less than the value of the share price. The return of a mutual fund includes the distribution and the performance. An NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio's securities.

Here is a "hypothetical" Dividend Distribution/Reinvestment model of an Equity Income fund

Initial Purchase: $2,500 1/4/2010
Net Asset Value/Share Price: $20.00
Maximum sales fees: 5.00%
Investment Value: $2,375.00 (-5.00%)
Shares purchased: 118.75
Risk: High

3/31/2010 Distribution of income $0.10 per share
Net Asset Value: $21.00
Total value of distribution: $11.875
Additional shares gained/reinvested: 0.5654
Total shares owned: 119.3154
Total Performance: $21.00 - $20.00 divided $20.00 = 5.0%
Total Return: $21.00 + $0.10 - $20.00 divided $20.00 = 5.5%
Yield on Investment: $21.00 x 119.3154 = $2,505.62 - $2,500 = 0.22%

6/28/2010 Distribution of income $0.09 per share
Net Asset Value: $20.75
Total value of distribution: $10.738
Additional shares gained and reinvested: 0.5174
Total shares owned: 119.8328
Total Performance: $20.75 - $20.00/$20.00 = 3.75%
Total Return: $20.75 + $0.09 + $0.10 -$20.00/$20.00 = 4.70%
Yield on Investment: $20.75 x 119.8328 = $2,486.53 -0.56%

9/30/2010 Distribution of income $0.10 per share
Net Asset Value: $22.00
Total value of distribution $11.983
Additional shares gained and reinvested: 0.5446
Total shares owned: 120.3774
Total Performance: $22.00 - $20.00/$20.00 = 10.0%
Total Return: $22.00 + $0.10 + $0.09 + $0.10 - $20.00/$20.00 = 11.45%
Yield on Investment: $22.00 x 120.3774 = $2,648.30 5.93%

12/31/2010 Distribution of income $2.00 per share
Net Asset Value: $21.00
Total value of distribution $240.75
Additional shares gained and reinvested: 11.4645
Total shares owned: 131.8419
Total Performance: $21.00 - $20.00/$20.00 = 5.0%
Total Return: $21.00 + $0.10 + $0.09 + $0.10 + $2.00 - $20.00/$20.00 = 16.45%
Yield on Investment: $21.00 x 131.8419 = $2,768.68 10.74%

Using this scenario (12/31/2010 $2.00 distribution) is when a investor should strike while the mutual fund distribution is hot! The reason being, the share price is $2.00 lower than the previous opening market day value. Assuming the opening net asset value was $23.00, the closing purchase price is $21.00 -8.69%.

Search the internet for: "mutual funds that distribute income and/or capital gains" to find these type of funds.