Mutual funds can be structured in several different ways, including open-ended mutual funds vs. closed mutual funds being one particularly important distinction. To learn more about the way mutual funds are organized, you’ll want to read How a Mutual Fund Is Structured. You may also want to delve into Making Money from Mutual Funds, which explains how investors actually profit (or experience losses) from owning a stake in a mutual fund.
Mutual Funds Are Accessible. Many mutual fund companies allow investors to get started in a mutual fund with as little as $1,000. Schwab’s mutual fund family has a minimum of $100 for many of their mutual funds. And since mutual funds can be easily traded, the combination of low cost and ease of use makes them accessible. Systematic Investing and Withdrawals with Mutual Funds. It’s simple to take advantage of systematic investing with mutual funds. Many mutual fund companies allow investors to invest as little as $50 per month directly into a mutual fund. Money can be pulled directly from a bank account and invested directly in the mutual fund. On the other hand, money can be regularly withdrawn from a mutual fund and be deposited into a bank account. There are generally no fees for this service.
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Mutual funds give investors the ability to diversify across a wide variety of investments that they otherwise may not carry in their portfolio as individual securities. Since mutual funds invest in a diverse range of securities and investment options, one mutual fund share actually represents proportionate ownership in each and every investment in the mutual fund’s portfolio. Of most interest to investors is that each share also proportionately represents the profits of those investments as mutual funds are required to pass along profits to their investors by way of mutual fund distributions, which come in several forms.
In a mutual fund, the value of your shares goes up and down as the value of the stocks and bonds in the fund rise and fall. For the average investor to have the same exposure to those investment options and potential profits on their own would be extremely costly both in terms of the actual investment dollars and in terms of time. Additionally, investing in a mutual fund is generally a cost-effective way to gain access to professional money management. Were you to try and invest in individual securities and actively manage them the way a mutual fund’s manager does, it could very easily become a full-time job. In order to make wise investment decisions when you buy individual stocks and bonds yourself, at the very least you’d have to have the knowledge to do extensive research on various types of businesses in general (automobile, construction, medical) and on specific companies (GE, IBM, Microsoft).
Building Wealth Mutual Funds. Mutual funds are the best way for the most people to build wealth. Not everyone can become a successful business owner or rise to the top ranks of a large corporation. But saving and investing for the long term with mutual funds can be accomplished by almost anyone. While there are a plethora of investment options (individual stocks, ETFs, and closed-end funds, to name a few) a mutual fund can offer a simple, efficient way to invest for retirement, education or other financial goals.