Investing Extra Business Cash in Mutual Funds

Find great ways to diversify your investments
By Sheryl Nance-Nash, writer Inkwell Communications Investing corporate cash in mutual funds can give your company the financial power it needs to go to the next level. You can choose from thousands of mutual funds whose holdings include various types of investments from companies based both in the U.S. and abroad. When it comes to mutual funds there are three things to keep in mind:

1. Determine what types of companies you prefer
2. Do your research
3. Monitor your investments' performance

 

Assess your goals

First determine how much money you can invest. Remember, this money should not be touched for at least five years. Financial advisors say if you have less time than that, you shouldn't be in the market.
Try: To help you get started exploring mutual funds, check out the mutual fund sections in The Motley Fool, SmartMoney and Better Investing. Also check out this Merrill Lynch's primer, Investing Corporate Cash.

Research, research, research

Once you know what type of mutual fund suits your investment goals and philosophy, the hard part comes – choosing among the cornucopia of options. Every mutual fund has a prospectus, which won't be very entertaining, but very informative. It will spell out the fund's investment policies and objectives, risks, costs, historical performance data and more.
Try: To look at what some of the biggest players in the industry offer, review the fund offerings of Fidelity Investments, Schwab and T. Rowe Price.

Monitor your investment

You have a business to run so it's not feasible to surf the Internet every couple of hours to see how your investment is doing. That's probably not ideal for anyone. But you also don't want to make your investment and leave everything to Lady Luck.
Try: There are a number of places to help you monitor performance, such as Morningstar.

• Mutual funds give you diversity. If you put your money in only a handful of stocks your fortune would be tied to just a few companies. But with mutual funds, $1,000, $5,000 or $10,000, will give you a lot of diversification. Mutual funds spread your risk, which is key to any investment strategy.
• Be sure you know the tax consequences of any investment. If you hold your fund in a taxable account, for example, you will have to pay capital gains taxes.