Making smart investments is more than important for people who want to ensure their financial security (especially for the retirement times). And, among all types of investments, mutual funds are most definitely extremely popular.
What are they, though? Why would you settle for a mutual fund? What are its advantages? What about its disadvantages? We have gathered some of the most important things you should know about mutual funds – so read on and find out more.
Mutual Funds 101: The Absolute Basics
Mutual funds are a way of investing money for the purpose of yielding as much as possible in return. Most of the Baby Boomers have invested in mutual funds because it is one of the safest and easiest types of investment (and it used to be quite popular with people who worked in larger companies) Put simply, mutual funds are collections of investments (most often stocks). When investing in a mutual fund, you pick a fund you are attracted to (e.g.: technology), buy shares for it and allow a money manager to buy and sell stocks as he/she thinks is more profitable.
What Are the Advantages of a Mutual Fund?
In general, the advantages of a mutual fund are mostly connected to the ease with which they can be managed. Because your stocks will be left into the hands of a professional money manager, you will not have to worry about researching their value and knowing when to buy or when to sell. These people are trained to do this and they can do it for you.
What Are the Disadvantages of a Mutual Fund?
Like every other thing in the world, mutual funds can show disadvantages as well. One of the most commonly known ones is related to the fact that one small mistake made by a money manager can have a huge impact on your investment.
Moreover, it is also important to note that the annual fees for a mutual fund can be quite expensive (and they can rise to as much as several tens of thousands of dollars over the course of the investment period).
Last, but definitely not least, it is also worth knowing that mutual funds don’t necessarily allow for much diversity and that more funds can also mean more risks. For example, if you invest in two funds and they both have stocks in the same company and that company fails on the market, you will lose money with both of your funds.
Of course, mutual funds still pose a lot of advantages – which is why so many people rely on them when it comes to their investments. Before you make a step though, it is important to inform yourself and see if this type of investment is suitable for you. What’s more, it is also important to work with people who are truly professional about it and who are more than knowledgeable when it comes to this type of investments – so that you can make an actually profitable move for your financial future.