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:
Mutual Funds Offer Transparency. Mutual fund holdings are publicly available (with some delays in reporting), which ensures that investors are getting what they pay for. Investors can also see the underlying securities (stocks, bonds, cash, or a combination of those) that the mutual fund portfolio holds. All of the information you need to know, plus some you don’t need for investing, will found in the mutual fund prospectus, which can easily be found on the mutual fund company’s website.
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Once you know your investment objective, which will include the number of years to invest and how much risk you’re willing to take, you can choose the best mutual fund or funds for you. And depending upon the types of mutual funds you use, the ongoing maintenance required may be little to nothing. Mutual Funds Offer Professional Management. One of the primary reasons investing mutual funds is easy is because they’re professionally managed. Rather than researching, analyzing, buying and selling stocks or bonds yourself, you have a skilled money manager doing it for you. Professional management is at the core of how mutual funds work: When investors buy shares of mutual funds, they’re pooling their money together. Managers use this pool of money to buy the stocks or bond securities that end up forming one portfolio.
Dave Ramsey is a good entertainer and seems like a genuinely nice person. However, regarding mutual funds, his investment philosophies border on dangerous. It is possible to glean a few good mutual fund investment tips from his talk radio show, but any investor is wise to understand the difference between entertainment and sound investment practices. Armed with sound insight on mutual funds, investors can do well to build their own portfolios. But remember that mutual fund research, analysis and portfolio management is not for everyone. If you don’t enjoy doing it, chances are you won’t be good at it.
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.