Mutual funds are one of the first investments that aspiring investors turn to from the get-go. And there a lot of good reasons for that. There’s just a lot of benefits that you can get from investing in mutual funds.
Some of the key advantages include simplicity, expenses, diversification, and professional management.
If you are a beginner and you want to know why mutual funds are a good fit for your investment needs, or if you are an advanced investor and you need a reminder why mutual funds are good investments, this is for you.
Easy to Understand
Mutual funds require no experience or knowledge of economics, financial statements, or financial markets.
A mutual fund, simple words, is an investment security type that enables investors to pool their money together into one professionally managed investment. Mutual funds can let you invest in stocks, bonds, cash, and many other assets. These underlying security types are called holdings.
They combine to form the mutual fund, which we can also call a portfolio. You can practically call them a basket of investments. And each basket holds dozens or even hundreds of different security types like stocks and bonds.
Easy to Buy
Various brokerage firms offer mutual funds. They are also being offered by discount brokers online, mutual fund companies, banks, and insurance companies. Even true beginner investors can easily open up an account at a no-load mutual fund company. The account will be up and running within minutes.
Mutual Funds have a Wide Market Exposure
A single mutual fund can invest in dozens, hundreds, or, if you want, even thousands of different investment securities. This makes it possible to achieve diversification by investing in just one fund. On the other hand, it is smart to diversify into several different mutual fund. After all, nobody should put all his eggs in just one basket.
Mutual Funds have Many Categories and Types
As you expand and grow your portfolio of mutual funds, you ought to diversify into various mutual fund categories and types. You can invest in mutual funds that cover the main asset classes, such as stocks, bonds, cash, and several sub-categories. If you want, you can even try your luck in various specialized areas like sector funds or precious metals funds.
Mutual Funds have Low Minimums
Most of the mutual funds available in the market have a minimum initial investment requirement of around $3,000 or less. In most cases, if the investor initiates a systematic investment program, in which they have a fixed dollar amount or fixed number of shares bought once per month, the initial investment can get as low as $1,000.
Mutual Funds are Cheaper than other Portfolio Types
Costs as percentage of assets in the portfolio are usually lower for an actively managed mutual fund if you compare it 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.
