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Tuesday, August 26, 2008

Mutual Funds: Advantages


Hoss Cents Free Financial Money Magazine explains the advantages of investing in mutual funds. Mutual funds are an excellent investment tool for both the novice and experienced investor. They are many benefits to mutual fund investing, which The Hoss has summarized below.

  • Costs: Many mutual fund companies permit new investors to buy units (shares) with as little as a $500 initial investment. Subsequent regular unit purchases can be set up for as little as $50 a month. Whether you invest $100 or $100,000, all investors in the fund receive the same benefits of the fund.
  • Diversification: You have probably heard the cliché "never put your eggs in one basket". Mutual funds, because of the vastness of their pool, provide a format in which the investor has a share in a variety of investments, bonds and securities. You can invest in any number of funds such as equity funds, income funds, specialty funds, mortgage funds, index funds, to name a few. Now that's diversification.
  • Professional Money Management: Most people are not trained in the world of investing. When purchasing a mutual fund, you are in effect hiring the skill and expertise of a professional money manager. They do all the research and have the knowledge to make good investment choices on behalf of the fund. If they are not successful they will not be a fund manager for long.
  • Efficiency: Mutual fund companies have large sums of money to invest and are able to negotiate commission rates.
  • Liquidity: You can redeem you units or shares at any time at the net asset value per share (NAVS).
  • Flexibility: Many mutual fund companies offer a multitude of fund types and allow the investor to switch between funds with little or no charge. This enables you to adjust the balance of your portfolio in accordance with the financial goals established by you and your financial adviser.
  • Monitor Performance: You can monitor the performance of your mutual fund(s) by tracking their NAVS, which are reported daily in the financial press or on the Internet.

A word of caution: Due to the potential serious impact to your return on investment, The Hoss suggests that before you invest in any mutual fund, you familiarize yourself with all the costs associated with the fund(s) and the performance record of the fund manager.

Stay on track,
The Hoss

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Very funny and informative The Red Stapler Chornicles.

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