Let’s get back to the 20 percent yield thing. Indices such as the S&P 500 have periodically reached and exceeded the elusive 20 percent yield, but these indexes, which reflect general market conditions, do not yield 20 percent over the long-term. So how do you earn 20 percent in the stock market? You must place your money in a stock portfolio that appreciates 20% every year. What is a stock portfolio? 

A stock portfolio is a collection of more than one stock.

You can build and manage your own stock portfolio yourself or you can invest in a mutual fund's stock portfolio. Both have their inherent advantages and disadvantages, refer to the table below.

*Invesco is a very good mutual fund company that will waive the initial investment and reduce the minimum subsequent investment to $25 for AYI members that open up a retirement account. 

Mutual funds lose money in accounts that maintain a balance of less than $1,000. The account costs more to maintain than what is generated from the expense ratio. The expense ratio is a charge, stated as a percentage of total investment, that shareholders pay for a mutual fund's operating expenses, management fees and other overhead expenses. The money is withheld from the fund's current income and is not an out-of-pocket cost to the investor. It is normally disclosed in the fund's annual report to shareholders. More about expenses ratios later.

Almost all US citizens will own shares of a mutual fund at some point in their working life through employer sponsored retirement plans (401Ks) state pension plans etc... Therefore, US citizens should understand how mutual funds function and how to analyze them. The next portion of this training module will tackle the world of mutual funds.