Mutual funds have grown in popularity over the last few years to the point where it’s harder to find an investor who is not using mutual funds than one who is, here are four advantages of mutual fund investing. The popularity of mutual funds is no surprise when you consider that they are the easiest investments to use and require very little knowledge of the financial markets. There are four main advantages that mutual funds offer every investor, as you will learn in this article.
The first advantage of mutual fund investing is that mutual funds offer professional management of your investment dollars. Mutual funds are run by fund managers, who are essentially watching over your investment daily. There is almost no other place where you get that kind of investment management without paying huge management fees.
The second advantage of mutual fund investing is that mutual funds are extremely liquid. Any investor can sell his shares in a mutual fund any day that the stock market is open. Compare that to investing in real estate, CDs, or even stocks with low trading volume, which can take weeks to months to liquidate your stake. The liquidity of mutual funds gives an investor the ability to get out of the investment if needed quickly.
The third advantage of mutual funds is the diversification that they offer. Mutual funds invest in tens or even hundreds of different stocks, bonds, or money markets. Trying to duplicate this type of diversification in your portfolio could result in very high trading fees, not to mention huge headaches from trying to monitor hundreds of stock positions. This leads us to the fourth advantage of mutual funds, lower fees.
Mutual funds have very low fees due to their ability to take advantage of economies of scale. Since mutual funds pool the investment dollars of so many investors, they can buy stocks in larger quantities, leading to lower fees for mutual funds investors. Actively managed mutual funds have fees that are between 2% or 3%. Passively managed mutual funds that simulate a market index charge lower free many under 1%.
Mutual funds are growing at a feverish pace as more and more investors put their money in them. Considering the great advantages of mutual funds offering the average investor up to the guy with the multi-million-dollar portfolio, it’s no surprise.
With low fees and in many instances low entry funds, some as low as an initial investment of $25, you can dollar cost average and buy small quantities, and fractional shares buy using a fund company to purchase the shares. Or, if you prefer the instant liquidity of mutual funds, consider the purchase of exchange-traded funds that trade throughout the day like a stock. Most are passively managed with low fees; however, they may carry transaction costs when buying and selling them.
For more information on the purchase of mutual funds directly from the fund’s family visit https://www.schwab.com or https://www.vangurad.com. And for those who wish to avoid selecting what types of funds to purchase many funds offer target-date funds which will invest based on your desired retirement date, for more information visit https://kgmeyerpc.com/what-is-a-target-date-fund-2/.
For more information on investing in mutual funds, contact me directly orseek out the assistance of a Registered Financial Consultant.
