Can someone explain a mutual fund in detail?

My economics teacher was talking about how putting 50$ a month in a mutual fund will total close to a million dollars when we retire if we start at age 20 and expect to retrie at age 45.
I can put 50$ a month away if this is true.
But I don't know anything about mutual funds. Could someone please explain: (or give a website that doesn't use a lot of jargon because if I have to keep looking up every other word I will be just as lost)
What are they? Whats good/bad about them? Is there like a minimum fee to open one?
I already have a students saving account, should I close this an just put everything into a mutual fund?
My teacher also said I should be involved in my 401K at work along with this mutual fund; why? Wouldn't one of them be better than the other?
Thanks for any help!

Essentially a mutual fund is a large pool of money that a lot of investors put together which is then invested in the stock market.

As an example say you have 1000 people each with 1000 to invest. Instead of each person buying stock, they pool their money together and buy 1 million worth of stocks, with each person owning 1/1000th of the pot. If another investor comes along he can put his money in as well and own a slightly smaller stake in a slightly larger pot.

Now why would you do this?

There are two basic reasons:

1) Diversification. Essentially you want to own stock in a lot of different companies to reduce the risk that one of the companies you've invested in will turn out to be the next Enron. Unfortunately if you only have, say, $1000 to invest its impractical to go out and buy stock in 50 different companies (you have to pay fees each time you buy and sell stock and these become extremely expensive if you make very small trades). Instead you go can and buy a $1,000 stake in a mutual fund which is invested in 50 different companies, and effectively own a small amount of stock in a large number of companies.

2) It's an easy way to let someone else manage your money. For example if you want to invest in biotech companies but don't know anything about biotech stocks you can buy shares in a biotech mutual fund and then have someone who does know something about the field make decisions for you. A wide range of mutual funds exist that cover different parts of the stock market.

Some mutual funds trade on the market like stocks (these are called exchange traded funds) others you would buy from the mutual fund company (for example www.vanguard.com).

Minimum investments (if any) will depend on the individual mutual fund--the website for the fund or fund family should tell you what you need to know. There is no minimum puchase for exchange traded funds, though in general because of comissions its not a good idea to make really small (under $500) puchases of ETFs (in which case just save up your money and buy once or twice a year).

A 401k is a type of (legal) tax sheltered retirement account that you can use to buy stocks and mutual funds.

Frankly I'm not a fan of bank savings accounts, which give terrible interest rates. However the stock market is inherently volatile (though over the long term it does tend to go up significantly).

Hope that helps. The following websites should have info:

Morningstar
Motley Fool
Investopedia

or just Google 'mutual fund'

Good luck.

Mutual funds are similar to the stock market. You can make a lot of them, but you can loose a lot too. Your teacher was exaggerating about $50 becoming a million in 25 years; i put close to $700 in a mutual fund almost 10 years ago and have a little over $5000. You could probably check my mutual fund's website to learn more. https://www.aiminvestments.com/portal/si...
Click on mutual funds on the right bar.

Open a brokerage account at Zecco and invest at least once a month in the Vice Fund and you will make millions.

A mutual fund is a company that buys stock in other companies. The value will flucuate based on the "net asset value" of the stocks and bonds it owns (for a open-ended mutual fund, there is something slightly different called a closed ended mutual fund).

The good thing about a mutual fund is that you get a diversified portfolio and professional money management at a very low cost. Generally, around 1% per year.

Well managed stock mutual funds have returned an average of 12%/year over the long term.