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 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.
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Frugality: Mutual Funds Cost Less to Manage Than Other Portfolio Types, Costs as a percentage of assets in the portfolio are usually lower for an actively-managed mutual fund when compared to an actively-managed portfolio of individual securities. When you add up transaction costs, annual fees paid to a brokerage firm, and the cost for research tools or investment advice, mutual funds are less expensive than the typical portfolio of stocks. Other variables influence the cost of managing a portfolio, such as the amount of trading activity, the size of transaction, and taxes.
How does one reduce taxes on mutual funds? Which types of funds are best for taxable accounts? Why did you receive a 1099? Understanding mutual fund taxation will help improve your overall returns by being a smarter investor. As the saying goes, ”Nothing is sure in life but death and taxes.” However, taxes can be minimized or even avoided with regard to mutual fund investing. Basic knowledge and practice on mutual fund taxation enables an increase in your overall investment portfolio returns.
Since mutual funds are easy to understand and a smart investment choice for the majority of savers and investors, these security types are the most commonly held investments in 401(k) plans and IRAs. However, although mutual funds are relatively simple to use, they are not for everyone and investors should be careful to select the best funds that align with their goals and tolerance for risk.