Bottom Line on Buying Mutual Funds
Some of the key benefits of mutual funds include simplicity, cost, diversification, and professional management. These and other benefits make mutual funds the first and best choice of investment for the do-it-yourself investors, as well as professional money managers. If you are a beginner and want to know why mutual funds are a good fit for your investment needs, or if you are an advanced investor and need a reminder of why mutual funds are best-suited for your financial goals and lifestyle, here are some of the many benefits you need to know. Here are 8 of the top benefits of mutual funds:
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Mutual Funds Lack Liquidity. How fast can you get your money if you sell a mutual fund as compared to ETFs, stocks and closed-end funds? If you sell a mutual fund, you have access to your cash the day after the sale. ETFs, stocks and closed-end funds require you to wait three days after you sell the investment. I would call the “lack of liquidity” disadvantage of mutual funds a myth. You can only find more liquidity if you invest in your mattress.
Choose Wisely When choosing mutual funds for your portfolio, do your homework. Review each fund’s fees and individual asset allocation to make sure you’re choosing a fund that fits your investment goals and risk tolerance. Also, consider a fund’s performance. While past history doesn’t guarantee future results, it’s also wide to look at how much a fund has gained or lost in the past.
Mutual Funds Come in Many Varieties. A mutual fund comes in many types and styles. There are stock funds, bond funds, sector funds, target-date mutual funds, money market mutual funds and balanced funds. Mutual funds allow you to invest in the market whether you believe in active portfolio management (actively managed funds) or you prefer to buy a segment of the market with no interference from a manager (passive funds and index mutual funds). The availability of different types of mutual funds allows you to build a diversified portfolio at low cost and without much difficulty.