What Are The Biggest Advantages Of Investing In Mutual Funds?

What are the biggest advantages of investing in mutual funds? Diversification is probably one of the biggest advantages of investing in mutual funds. When you invest in a mutual fund, you are gaining many...

When you invest in a mutual fund, you are gaining many advantages that are not readily available to the individual investor. From the MFEA website, here is a common situation, "Let's suppose you're just getting started as an investor and have $5,000 to invest and you have three important goals you want to achieve. First, you don't want to lose your money in a risky venture so you want security, like that found in a certificate of deposit or other fixed income investment. But you also want to make the most money you can, so you want the prospect for growth potential, too. Finally, since you don't have the time or knowledge to actively manage your money, you want professional money management -- occasionally diversifying your investments into promising new opportunities. That sounds like a very good plan, but where can you invest your money and have a chance to meet all three criteria?" Michelle Smith, the managing director of the Mutual Fund Education Alliance (MFEA) says, "Mutual Funds are held by 90 million American households...and are clearly a great investment choice to reach lifetime goals."

Diversification is probably one of the biggest advantages of investing in mutual funds. Mutual funds are designed to use a broad range of securities to meet the objective of the fund's creation. Risk is limited because with such a large number companies involved, if one goes bankrupt, the rest of the securities will hold down the fort. Not to say there are not high-risk mutual funds. They are primarily on the high risk, high potential for capital appreciation. However, even they are a better bet than using a single company because they too have a variety of securities, including many international offerings.

Another huge advantage to mutual fund investing is the access to experienced managers and directors of the fund itself. A board or individual with years of experience in the markets manages every mutual fund. These persons have the time and knowledge to seek out the best companies who meet the criteria for the fund. They keep an eye on every security and if one or two start showing signs of doing poorly or even going to bankruptcy; they can sell off the shares. In reverse, if a new company comes out and is making great gains or has potential, they can purchase shares to add to the diversity of the mutual fund.

Mutual funds give you plenty of access to your money. You can create an investment account by using the mail, telephone, bank wires or in person. Some companies even offer account transactions online at their websites. If, after studying the annual reports, you decide that a particular fund is not meeting your personal goals, you can call or go online to liquidate it from your account. Likewise, after studying the newspapers or other sites with investment information and you find one that is of interest, you can easily purchase shares.

There are many other advantages to mutual funds, such as market cycle planning and low or no cost. No matter how you look at it, mutual funds are a great advantage to your investment portfolio.

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