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.
Before you invest in mutual funds, you should do your homework. And fortunately, we’re here to help you with that! Which funds are the best to use? Will you choose to use mutual funds, closed-end funds, ETFs, and/or individual stocks and bonds? Inevitably, your homework assignment will lead you to articles outlining the disadvantages of mutual funds. But are all of these so-called disadvantages of mutual funds really disadvantages of mutual funds? Let’s take a look at several so-called disadvantages of mutual funds, and how you can avoid them.
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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.
Since most investors are buying mutual funds for the long-term, and most are moderate investors that want to take some risk to get higher returns (but not a high level of risk) we’ll focus on building a portfolio for this investment objective (long-term, medium risk). Here are some of the best funds to start a long-term portfolio:
What Makes Mutual Funds Good Investment Options. Mutual funds are one of the most highly utilized investment options among average investors and financial professionals alike. But why is investing in a mutual fund a good idea? While some mutual funds are objectively better investment than others (and even others that serve very specific investment needs), what mutual funds grant investors access to is perhaps the most important benefit.