For the average family, a mutual fund is the easiest way to earn more on your hard-earned cash if you lack time and you're worried about your investing skills.

However, there are a number of misconceptions about mutual funds, which are registered investments that pool investor money. Headed by professional money managers, mutual funds typically invest in a range of maybe 20 or more individual stocks, bonds or other investments.

So if one of its investments performs poorly, you won't necessarily lose your shirt.

However, too many investors rely on hot tips from friends or family members when it comes to choosing mutual funds. It's better to base your selection on the nature of the investments inside the fund and how risky they are. Can't afford to lose any money? Then stay away from mutual funds because your principal can fluctuate.

On the other hand, mutual funds can be great if you invest regularly over the long term -- at least 10 years. Watch your fund costs and make sure your mutual funds hold a wide range of investments.

With mutual funds, you stand to profit if values of the investments inside your fund increase. If there are stocks in your fund, you may earn your share of periodic dividends, or profits passed along by companies to their stockholders. If there are bonds in your fund, you should get your share of periodic interest payments.

You can buy mutual funds through a broker, financial adviser or directly from a mutual fund company. The cheapest route typically is directly from the mutual fund company -- either online or through a toll-free number.

Unfortunately, as with any security, the value of your mutual fund may drop due to a number of factors.

Here are the risks you must consider with any mutual fund:

Company risk. If your fund is invested in company stock, those company profits could fall below expectations, causing the stock price to decline and the value of your fund to drop. Bad news about a company or industry also could send stock prices, and thus the value of your mutual fund, into a tailspin.

Market risk. If the overall stock market or bond market drops in value, the stocks or bonds in your fund could follow suit.

Credit risk. If bonds are in your fund, the issuer could fall on tough times and have problems keeping up interest and principal payments to bondholders, including your mutual fund.

Interest rate risk. If interest rates rise, the values of existing bonds, including those in your fund, typically drop. Reason: Investors would rather buy bonds with higher rates. So if bonds are in your mutual fund, the value of your fund also could drop.

Inflation risk. Your mutual fund -- or any other investment, for that matter -- could fail to keep up with inflation or higher prices. So your earnings might not buy as much as you'd like.

Any investment has at least some risk. Yet, over the long term, say 10 to 30 years, stocks, bonds and the mutual funds that hold them, historically have performed better than less risky types of investments.

So if you're willing to accept a few of these risks, and perhaps balance them out with more secure investments, you can wind up earning more in the long run.