If you’re a young professional looking into investing possibilities, you may have come across some advice that sounds like this: young people should seek out reliable mutual funds. This is pretty common guidance these days, and it’s certainly an idea worth considering for any young professional with a little bit of income to spare for investing. However, it’s still important to get a good handle on what exactly you’re dealing with, other than something that’s frequently recommended in lists and articles aimed at millennials with financial interests.

In this post, I want to briefly cover five things that anyone considering investing should know about mutual funds.

1. What Is A Mutual Fund?

Naturally, this is the key question! We covered a lot of the basics in an article a few years back, but the general idea is that a mutual fund is a large pool of money invested across a diverse range of stocks. It’s generally considered to be an appealing option for casual (or young and inexperienced) investors, given that a mutual fund is typically run by a professional. That means that once you choose a fund (you’ll be able to look at different options’ performances, intended risk levels, etc.), your only job is to invest, watch what happens, and withdraw your stake when you choose to do so. It’s about as hands-off as investing gets, though that doesn’t necessarily mean it’s easy.

2. How Do You Pick A Mutual Fund?

This is really the trickiest aspect of this sort of investment and was touched on briefly in our past article. As mentioned, you’ll want to look at a range of factors including past performance, the fees charged for investing or withdrawing, which assets the portfolio consists of, etc. However, the actual process is a little bit more complicated than that. By looking at these five bad ways to to pick a mutual fund, you can begin to get an idea for the level of research required to make a responsible decision. There it’s recommended that you focus less on past returns, advertised risk levels, and ratings; instead, take a real look at how the specific risk tolerance matches your personality, or how the assets are diversified. In other words, get to know the ins and outs of a fund, rather than simply its headline features. Remember that terms and phrases like “diversification” and “high risk tolerance” are all relative.

3. What Are The Advantages?

These can be different from one investor to another, but there are several perceived advantages to buying into mutual funds. Namely, they’re managed professionally (meaning specific buy/sell decisions might be more reliable than they would be in the hands of an inexperienced beginner); they’re diversified (meaning assets are spread out across various companies and industries to protect against a net loss); they’re affordable, and can often be bought into with very small initial investments; and they have high liquidity, enabling investors to withdraw their capital at a moment’s notice in most cases. Again, the value of these advantages may be different from person to person, and not all mutual funds check all the boxes in the same ways. But for the most part, these are the reasons many consider mutual funds.

4. What Are The Disadvantages?

There are a number of potential disadvantages as well. For the most part, these concern potential fees, such as what the manager of the mutual fund is owed, and a lack of control over specific assets and pricing. In a mutual fund, you’re simply buying a stake in the total fund, allowing the manager to spread out your capital for the good of the greater investment (alongside money from other investors). Thus you have no control over where within the fund your money goes, and you can’t shuffle assets the way you might want to on occasion.

5. Is A Mutual Fund A No Brainer?

If you’re like many other young people looking to invest, you may have scanned those advantages and disadvantages and determined that a mutual fund is pretty much a no-brainer. You can tolerate a few management fees in exchange for intelligent, strategic, hands-off investing that’s likely to earn you returns over the long run. And for many, it’s a good idea. But as with any sort of investment, it’s wise to be realistic and recognize that a mutual fund is not a sure path to the accumulation of wealth. In fact, 85% of mutual funds fail to beat the stock market, which returns about 11% per year in general. Now, that doesn’t mean they’re not a good idea either, but such a number should serve as a reminder that no investment is a sure thing.

Mutual funds remain very attractive options to a lot of young people, and I’d encourage anyone considering investing to at least do some research about them. But these basic points should at least provide a general outline of what to expect.