Benefits of Investing in Mutual Funds
Instead of purchasing individual stocks and bonds, many investors choose mutual funds as their main investments. What makes these investments so appealing? For many individuals, mutual funds provide an easy way to enter the market without a great deal of additional work on their part, but there are other benefits as well.
Pooled Money
By pooling money from a number of people, a mutual fund can provide greater buying power for each investor. And, because the fund buys and sells many securities at a time, its brokerage costs are often lower than you would pay as an individual investor.
Diversification
A mutual fund invests in dozens – even hundreds – of securities. It would be difficult for the average investor to buy such a wide variety of investments individually because the cost would be prohibitive. Owning many different securities – including stocks, bonds, and cash equivalents (money market instruments) – helps to manage the overall risk of your investments, because diversification can reduce your exposure to any one security.
Professional Money Management
When you buy shares in a mutual fund, you automatically get full-time professional money management. The fund's manager analyzes hundreds of securities and makes decisions on what to buy, when to buy, and when to sell. With professional management, once you've chosen a fund that's right for you, there's no need to constantly monitor the stock market or economic conditions in order to make changes – the portfolio manager does it for you.
Affordability
You can usually invest in a mutual fund for a low minimum initial investment – and make subsequent investments in small increments.Liquidity
You can sell shares of an open-end mutual fund on almost any business day. You don't have to wait for the fund company to find a buyer for your shares, because it is ready to issue new shares or redeem existing shares at any time. Keep in mind that the price of all mutual fund shares can change daily, and you'll receive the current value of your shares when you sell – which may be more or less than your original cost.Common Goals
There's a wide variety of mutual funds available. Whether your goal is a regular source of income, your child's education, or a comfortable retirement, there's a fund designed to meet your needs. Matching your goals with the goals outlined in the fund's prospectus is an important step.Stock funds should only be considered for long-term goals as values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond fund values fluctuate in response to the financial condition of individual issuers, changes in interest rates, and general market and economic conditions. Some funds, including non-diversified funds and funds investing in international securities, high yield bonds, small- and mid-cap stocks and/or more volatile segments of the economy, entail additional risk and may not be appropriate for all investors. Consult a Fund's prospectus for additional information on these and other risks.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
