Mutual Funds Have High Sales Charges. Should a sales charge be included in the disadvantages of mutual funds list? It’s difficult to justify paying a sales charge when you have a plethora of no-load mutual funds. But, then again, it’s difficult to say that a sales charge is a disadvantage of mutual funds when you have thousands of mutual fund options that do not have sales charges. Sales charges are too broad to be included on my list of disadvantages of mutual funds.
Perhaps the greatest benefits of buying mutual funds are that they are simple enough for beginning investors to buy and manage but they are also powerful and productive enough for even the most seasoned of investors. This guide will walk you through the purchase of your first fund to building a complete portfolio of mutual funds. Choosing the Place to Buy Mutual Funds. Although you can buy mutual funds through a discount broker, such as Charles Schwab or Scottrade, the best way to buy mutual funds is through a mutual fund company. But you don’t want to start with just any mutual fund company; you’ll want to do a bit of research to find a reputable firm that has a broad selection of low-cost, high-quality mutual funds.
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Other Types of Mutual Funds: Index Funds. Today, not all funds are managed by a financial manager. Index funds use a computer program to buy all of the stock in a particular index, such as the Russell 3000 or the S&P 500, regardless of how they’re performing. They don’t have to do research or try to time the movement in the market to buy or sell at the ”right” time. Index fund fees, therefore, are generally much lower than the fees for managed funds, and, therefore, the return on investment is higher.
Mutual Funds Are Diversified Investments. The nature of mutual funds as pooled investments that are professionally managed means that investors generally can easily accomplish one of the most important standards of smart investing — diversification. To diversify means to spread market risk by holding a variety of several different securities, rather than just a few. Most mutual funds invest in dozens or hundreds of stocks or bonds within one portfolio. Depending upon the type of fund, this accomplishes the fundamentals of diversification with as little as one or two mutual funds. However, when building a portfolio of mutual funds, especially as investment assets and objectives grow more complex over time, investors are smart to diversify across several funds in different categories.
This is work that most of us are not interested in, do not have the time for, and, most importantly, are probably not as qualified to do. By purchasing shares of a mutual fund, you’re also purchasing the money management and investment skills of the fund manager whose job it is to invest and reinvest the mutual fund’s capital based on the fund’s established goals.