So in preparation for making the first purchase of a mutual fund, you’ll need to save enough to cover the minimum.
Knowing Your Risk Tolerance. Before choosing funds, it’s important to know your risk tolerance—a measure of the level of fluctuation (a.k.a. volatility—ups and downs) or market risk to which you’re willing to subject your portfolio. If you are just getting started investing with mutual funds, or if you get highly anxious when your $10,000 account value falls by 10 percent (to $9,000) in a one-year period, your risk tolerance is relatively low—high-risk investments probably aren’t for you. You might consider starting with a balanced or ”hybrid” fund.
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Retirement is generally considered a long-term investment objective. But there are mutual fund types, such as money market funds or bond funds, that are suitable for most short-term needs. Investors may also combine types of funds to tailor more specific investment objectives. Mutual Funds Are Versatile Enough to be Used By All Types of Investors. All of the advantages of mutual funds mentioned in this article combine into one advantage of flexibility. They’re simple enough to be understood and used by beginners but versatile enough to be used by professional money managers, who often use them to build portfolios for clients.
Mutual Funds are Professionally Managed. Many investors don’t have the resources or the time to buy individual stocks. This is where professional management is valuable. Investing in individual securities, such as stocks, not only takes resources but a considerable amount of time. By contrast, mutual fund managers and analysts wake up each morning dedicating their professional lives to researching and analyzing current and potential holdings for their mutual fund.
In different words, Mutual funds can be considered baskets of investments. Each basket holds dozens or hundreds of security types, such as stocks or bonds. Therefore, when an investor buys a mutual fund, they are buying a basket of investment securities. Simple! Yes, there are many things to know about mutual funds but compared to the broad world of financial products, mutual funds are quite easy to use and understand.