Mutual funds are a very popular choice amongst investors simply because they tend to provide the following key features:
Professional Management. That is, the fund managers do all the research for you, often at a discount. Instead of trying to allocate your capital gains and dividends to different types of businesses or industries, you can safely invest in the funds that have a wider range of investment opportunities. Also, mutual funds usually invest in a wide variety of sectors and industries as well as in different types of products. This results in diversification of your portfolio and better protection against stock price fluctuations.
Diversification. Mutual funds are usually invested in securities held by several other investors and therefore there is a larger concentration of risk within the overall portfolio. Because of this diversification, it reduces the risks that can be associated with a single portfolio and can thus help to reduce the potential losses that occur during times when the market is experiencing significant swings. Investing in several different types of funds can also result in a diversified portfolio, which can result in lower costs for the investor.
Volatility. Most investors would prefer their investments to have a lower volatility than the portfolio containing many ordinary high-risk stocks and bonds. By investing in mutual funds, you can opt for investments that have high volatility. Because these securities usually only pay out a small amount of interest per day, they generate small gains over time.
Easy MIPs. With mutual funds, you can invest without needing a Certified Public Accountant (CPA). You don’t need to hire an advisor or CPA to guide you through the process of choosing what stocks and bonds to invest in, what types of transactions to make, and when to sell your investment. With this convenience comes at reduced cost, as most advisors and CPA’s charge a hefty fee for these services. If you invest using a mutual fund manager, you will not need to pay any fees or commissions for their services.
The various advantages that mutual funds offer make them ideal for many different types of investors including individuals, retirement funds, and even groups of people who wish to pool their investments together for greater investment performance. If you are currently investing but feel that your portfolio is too diverse, mutual funds may be a good option for you. If you are already invested but think that your portfolio is not balanced, you may consider changing your asset allocation strategy to include more stocks and bonds in your portfolio. No matter what your investment goals are mutual funds can help you achieve your goals if you are willing to invest a little extra effort.