What is a prospectus? A prospectus is a formal legal document filed with the Securities and Exchange Commission that provides details about an investment offering that is available to the public. The goal of the prospectus is to provide notes and facts that make the investor much more informed.

If the whole point of a prospectus is to inform investors and help them make better investment decisions then why don’t more investors use a prospectus? It’s one of the things that I personally don’t understand, since it seems to make so little sense. The prospectus is there for you, free of charge, to help you make a better informed investment decision and many people decide that they do not wish to use it.

Both stocks and mutual funds are required to provide a prospectus at least once a year. This annual prospectus contains information about what the company or fund has done with their money in the last year and how things have gone, as well as information about expectations for the future. Generally a prospectus is broken up into categories that show past performance and recent achievements, then they provide an outlook for the near and long-term future.

A stock’s prospectus is essential to an investor who owns shares in that particular company or is seriously considering owning shares in that company. Financial information and words directly from the executives should help you in your decision making process. A mutual fund’s prospectus is very helpful for an investor that is simply looking to get inside the mind of a seasoned Wall Street money manager. The mutual fund prospectus is where that particular manager will talk about their outlook for stocks and the economy. The prospectus also has a full list of all the stocks the mutual fund owns, which should be of great interest to the individual investor.

The bottom line is a prospectus is there to help you profit. Use this important investment tool as often as possible!