A mutual fund is a pool of money that is professionally managed for the benefit of all shareholders. As an investor in a mutual fund, you own a portion of the fund, sharing in any increases or decreases in the value of the fund. A mutual fund may focus on stocks, bonds, cash, or a combination of these asset classes.
THE BEAUTY OF MUTUAL FUNDS
Mutual funds offers a number of advantages, including diversification, professional management, cost efficiency and liquidity.
Diversification. A mutual fund spreads your investment dollars around better than you could do by yourself. This diversification tends to lower the risk of losing money. Diversification usually results in lower volatility, because when some investments are doing poorly, others may be doing well.
Professional management. Many people don’t have the time or expertise to make investment decisions. A mutual fund’s investment managers, however, are trained to search out the best possible returns, consistent with the fund’s strategies and goals. In essence, your mutual fund investment brings you the services of a professional money manager.
Cost efficiency. Putting your money together with other investors creates collective buying power that may help you achieve more than you could on your own. As a group, mutual fund investors can buy a large variety and number of specific investments. They can also afford to pay for professional money managers and fund operating expenses, where they wouldn’t be able to afford it on their own.
Liquidity. With most funds, you can easily sell your fund shares for cash. Some mutual fund shares are traded only once a day at a fixed price, while stocks and bonds can be bought or sold any time the markets are open at whatever price is then available.
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