What Are Mutual Funds?
- Five types of mutual funds to include as part of your investment strategy
- Why Invest In Mutual Funds?
- How they compare
- Mutual funds vs. single stocks
- Costs of mutual funds
- Pros and Cons of Mutual Funds
- The bottom line
Five types of mutual funds to include as part of your investment strategy
Money market funds
Target date funds
Why Invest In Mutual Funds?
- Mutual funds offer a diverse portfolio in one fund. With one single fund, you get access to a broad range of individual stocks. From low-risk picks to emerging markets, you spread the risk across hundreds of funds so you don’t need to worry if you have too much money in one stock or another.
- Your money is easily accessible when you need it. Unlike real estate and certificates of deposit (CD), mutual funds are relatively liquid. It does take a day or two for the transaction to be settled and the total value of the sale to arrive in your bank account. You cannot do a real estate transaction in a matter of days, and if you cash out your CD before it matures, you lose the accumulated interest.
- Mutual funds are easy to set up. Whether you want to invest in mutual funds through your IRA or a non-retirement account, it won’t take more than half an hour to open an account. Once you’ve got it funded, buying is easy and you can initiate new purchases in just minutes.
- Mutual funds are professionally managed. Since mutual funds are managed by professionals who are paid to manage these funds and beat the benchmarks, you don’t have to worry about whether or not it’s a good time to sell your single stocks. As long as you can understand the basics of how income funds work, their annual fees, expense ratios, you can choose one with a solid track record. It may not be a home run, but it’s better than savings account interest rates.
How they compare
Mutual funds vs. ETFs
Mutual funds vs. single stocks
Costs of mutual funds
Pros and Cons of Mutual Funds
- Mutual funds are a convenient way to get a diversified portfolio without a lot of time spent researching investment options.
- When investing in a range of mutual fund types, even one of each, you have access to most asset classes.
- You can buy and sell mutual fund shares anywhere you have an internet connection.
- Mutual funds are professionally managed by professionals who spend their work hours ensuring they have the best mix of securities to meet the fund’s goals.
- Mutual funds have complex fee structures that aren’t always clear. It may be hard to compare a fund’s expenses to similar investments like index funds.
- Share prices are calculated once per day so you can’t take advantage of a sudden, temporary dip in the market and buy low.
- You can’t control the capital gains on securities that are bought and sold within the investment. Unlike single stocks, you don’t have control over when, or how often, securities are sold.
How do I buy mutual funds?
Where can I buy mutual funds?
How much do mutual funds cost?
Are mutual funds a good investment for everyone?
The bottom line
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