What Happens to My Money When a Mutual Fund Has a Negative Percent?

A mutual fund is an investment product that allows you to buy shares backed by a professionally managed portfolio of stocks and/or bonds. The returns you earn from a fund depend on the performance results of the investments the fund owns. A stock fund owns shares of common stock with a goal of capital appreciation and possibly dividend income. The bonds in a bond fund fall into the classification of debt securities, with the primary source of investment earnings coming from interest paid by the bonds.

All you have to do is watch one of the financial news networks for a few days to grasp the fact that stock and bond prices move up or down. Stock prices can go into long-term trends in either direction that can last for months or even years. Within the long-term trends there will be short-term reversals, which can add confusion to investment decisions. Bond prices are dependent on interest rates, so as rates move up or down, the share prices of bond mutual funds can also show more than expected volatility. As an investor in a mutual fund you need to be aware that both stock and bond prices will change, and not always in a direction that makes your account more valuable.

The volatility of investment markets means that there will be periods of time when mutual funds report negative results. If you own a fund that has lost value, the value of your account will reflect the decline and if you cash out the account, you would have a loss on your investment. Just as you would be pleased if the fund account gained value and you would count that increase as your money, if the fund falls you have incurred a loss. However, a loss is only realized or locked-in if you sell your fund investment.

When you invest in a mutual fund, you need to understand that there will most likely be periods of time when your account value drops. This may be a good time to review the reasons that you led you to make an investment in the fund. If those reasons are still valid and the fund is an appropriate choice to match your financial goals, these facts reinforce your initial investment decision. View your mutual funds as long-term investments, and recognize that a dip is more of an opportunity to invest more rather than a time to worry about your currently smaller account value.