Mutual Funds Are Liquid. If you need to withdraw money from your brokerage account, you can get cash from most mutual funds within a few days. If you want to sell your mutual fund, the proceeds from the sale are available as soon as the day after you sell the mutual fund. Some mutual funds have a ”settlement” period of up to three days. But this level of liquidity (quick access to your money), is much better than some investment assets, such as real estate. Mutual Funds Have Audited Track Records : A mutual fund company must maintain performance track records for each mutual fund and have them audited for accuracy, which ensures that investors can trust the mutual fund’s stated returns. Mutual fund companies also offer a prospectus for each fund, as well as semi-annual or annual reports. These documents provide a wealth of information about how the fund invests, the amount of assets under management, the internal fund expenses, and more.
Building Your Portfolio. Building a mutual fund portfolio is similar to building a house: Many different strategies, designs, tools and building materials exist, and may be applied; but each structure shares some basic features. To build the best mutual funds portfolio, go beyond the sage advice, ”Don’t put all your eggs in one basket.” A structure designed to withstand the test of time requires smart design, a strong foundation and a simple combination of mutual funds that works well for your needs.
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Think of mutual funds as investment baskets of securities. Each basket has its own objective and manager (or management team). The manager also has a team of analysts that assist in doing the research. Also keep in mind that, when it comes to management, mutual funds fall into two primary categories — one is active management and the other is passive management. Managers of actively-managed funds will use their resources to try and ”beat the market,” which is to say that they’ll attempt to outperform a certain benchmark, such as the S&P 500 index. However, the manager of a passively-managed mutual fund will not try to beat the index but will instead buy and hold a basket of stocks that will replicate the holdings and performance of the index.
Dave Ramsey is a good entertainer and seems like a genuinely nice person. However, regarding mutual funds, his investment philosophies border on dangerous. It is possible to glean a few good mutual fund investment tips from his talk radio show, but any investor is wise to understand the difference between entertainment and sound investment practices. Armed with sound insight on mutual funds, investors can do well to build their own portfolios. But remember that mutual fund research, analysis and portfolio management is not for everyone. If you don’t enjoy doing it, chances are you won’t be good at it.
That said, a “no-load” fund is not free. All mutual funds have internal expenses. Part of your investment dollars will help pay the fund company, the fund manager, and other fees associated with running a mutual fund. These fees will often be made transparent to you and are taken out of the assets of the mutual fund. You should always take the time to consider all the various fees and charges when investing in mutual funds.