Mutual Funds Are The Best Investment Choice For Most People.
Mutual funds provide the best way for small individual investors to be able to conveniently obtain the benefit of owning a diversified and professionally managed portfolio.
Wouldn't you agree that most of us don't have the time or the expertise to be able to make good specific investment decisions.
Decisions such as what particular stock or bond to buy, when to buy, when to sell, how much to buy, and so on.
The great Warren Buffet once said...
"Investment must be rational.
If you can't understand it... don't do it."
Therefore, let's make sure that you clearly understand...
What Are Mutual Funds And How Do They Work?
The mutual fund is one of the most ingenious inventions of the financial industry.
It provides you a convenient way to be able to participate in all areas of the financial world.
A fund collects money from a lot of investors, and uses it to select, purchase, and manage a portfolio (all the investments owned by the fund) to achieve a specific investment goal or objective.
There are thousands of funds available.
Each one has a particular goal or objective that it is trying to accomplish.
A fund typically buys stocks, bonds, and other types of securities.
Its a way for investors to be both owners (stocks) and lenders (bonds) and invest in many securities at one time.
A participant (shareholder) buys shares of the fund and thereby is entitled to a percentage of the fund's profits and/or losses.
Why Invest In Mutual Funds?
Again, most of us, on our own, don't have the time or the expertise to do what needs to be done.
But you can take advantage of the following benefits provided by mutual funds...
Diversification. Look at this picture and answer this question.
What are the chances of the business on the left going broke?
Pretty fair chance, right?
Now, what are the odds of every business in that skyline going broke?
Extremely remote wouldn't you say?
Owning many companies is much safer than owning just one or two.
When you own a share of a fund, you own a portion of all the companies whose stock is owned by the fund.
Each fund invests in hundreds of securities, not just a few, and this
All those businesses would have to fail for you to lose your money.
A mutual fund spreads your investment dollars around better than you could do by yourself.
Diversity usually results in less volatility, because gains from some investments offset losses from others.
Professional Management. What if you were going on a trip and you were offered the opportunity to fly on one of two jet airplanes?
The first is being piloted by an experienced pilot who is being paid to fly the plane.
The second has no pilot but you are allowed to fly it yourself.
If you choose the plane without the pilot, a computer will be installed in the cockpit that hooks you up to an internet site that will tell you everything you need to know about flying the plane.
Which plane do you want for your journey?
What you need is experience... not information.
You need someone who has been there in bad weather and knows how to make a safe landing.
Fund investment managers are experienced and trained to make decisions geared to maximizing and protecting your investment both in good times and in bad times.
You get the services of a professional fund manager without having to pay the high price you will pay for a personal money manager.
Affordable. Most funds will let you open an account with as little as $500, or even just $25 if you invest monthly.
Power In Numbers. Putting your money together with other investors may help you achieve more than you could on your own by creating collective buying power.
Pooling of the shareholders money allows the fund manager to buy larger quantities and varieties of investments than might be possible on your own.
Liquidity. This means you can easily sell your fund shares at any time and turn them back into cash.
By now I hope that you have a better understanding of... what are mutual funds and how they work?
I also hope that you would now agree that...
Investing in mutual funds is the best choice for most people.
Now let's consider
how to choose the best funds.
"Because It Matters"... Jim
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