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.
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.
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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.
Investing in Mutual Funds Is Easy. Putting together a portfolio of stocks and bonds can be difficult, if not impossible, for the average investor. For example, the time and knowledge required to research and analyze a dozen or more stocks can be too challenging for most people. That’s not to mention all the trades needed to build the portfolio, plus the ongoing research and analysis required to maintain the portfolio. But when it comes to investing in mutual funds, investors can get started investing with just one mutual fund.
Simplicity: Mutual Funds Are Easy to Understand, Anything can be made into something more complex than it needs to be and mutual funds are no exception to this truth. However, mutual funds require no experience or knowledge of economics, financial statements, or financial markets to be a successful investor. For beginners, here is a simple definition of mutual fund: A mutual fund is an investment security type that enables investors to pool their money together into one professionally managed investment. Mutual funds can invest in stocks, bonds, cash and/or other assets. These underlying security types, called holdings combine to form one mutual fund, also called a portfolio.