What Are Mutual Funds?
At the heart of a mutual fund is a professionally managed investment portfolio. That portfolio is managed for a large pool of investors, each of whom owns a portion. Coincidentally, this structure is called a “pooled investment.”
Mutual Funds Offer Three Practical Benefits
Owning mutual funds provides investors with practical benefits, including diversification, professional investment management and convenience.
1) Portfolio Diversification
Diversification is a technique to reduce the risk of owning a single investment. It’s really as simple as investing in more than just one stock or bond. By allocating a portion of investment dollars to a number of different securities, you effectively spread the risk associated with any individual security.
Most mutual funds own dozens of securities. So, they provide an easy way to help diversify your portfolio. And you can choose from mutual funds that cover most major asset classes and sectors.
Replicating a mutual fund’s portfolio by buying even a token amount of each of the securities in the fund might be cost prohibitive…unless you have a large sum to invest.
2) Professional Investment Management
Mutual funds are managed by skilled, experienced investment professionals. They research and select the securities for you. Owning a mutual fund effectively puts you in the same league as large institutional investors. You have someone managing your money who has been through up markets and down markets and knows how to navigate each. This helps to take the emotion out of investing.
It’s easy to open a mutual fund account, and any dividends and capital gains can be automatically reinvested. Keep in mind, however, that you may be responsible for paying taxes on these types of distributions. Consult with your tax advisor.
Many mutual fund providers offer the option to set up an automatic investment plan in which you invest on a recurring basis for a low minimum initial investment.
Mutual funds also offer daily liquidity. This means that you can buy or sell fund shares once a day at the close of the market at the fund’s net asset value or NAV.
We can Help
Patience, a long-term perspective and objectivity generally contribute to investment success. This is where we can help. Our Representatives are available to answer your questions about mutual fund investing and can help you identify potential opportunities to accomplish your most important financial objectives. Call us at (800) 235-8396.