Risks of Mutual Fund Investing | Reasons not to invest in Mutual Funds

• Mutual funds can drop in value if market corrects itself. Also, if you’re investing in a load fund, you’re paying as high as 6% up front to acquire the shares that can even drop in value later. For example, let’s say you’re investing in American funds mutual funds. Most mutual funds offered by them have a load of 4-6%, so a $4,000 investment will result $3,760 in your account balance. Now this fund must return at least 6.4% in next year just to get back to your original investment of $4,000. If you’re in bear market, you could easily lose another 5%-10% of your initial investment, making it more difficult to make money on your investment. Continue to Read »

Reasons to invest in Mutual Funds

• One of the most important advantages of mutual fund investing is diversification. Your investment risk is greatly reduced through diversification because a mutual fun owns many stocks and/or bonds. Also, you have an option to select mutual funds by different level of risk. For example, if growth is your primary focus, you can select mutual funds with aggressive investment strategy. On the other hand, if you’re looking to establish a fixed income stream and more stability in your portfolio, you can select mutual funds investing in high-grade bonds and money market funds. Whatever is your investment goal, you can find a mutual fund to match your goal and strategy.
• Mutual funds also offer you a great advantage because they are professionally managed. Now what does that mean? Professional management means that fund is managed by group of people with lot more financial experience than an average investor. These fund managers also spend lot more time analyzing the market to figure out the best investment strategy and choices. Since most people do not have the time or skill to select and monitor individual stocks and bonds, a professionally managed mutual fund offers piece of mind and better future. Continue to Read »

Mutual Fund Investing

If you don’t want to invest in individual stocks, another popular investment choice is mutual funds. Investing in individual stocks has higher risk as compared to mutual funds. Mutual funds are indirect investment through which you can invest in stocks and bonds. Since mutual funds usually work with a basket of stocks rather than a big position in just one stock, their risk is much lower than individual securities. For example, a mutual fund specialized in energy sector will invest in 10 to 15 stocks in the energy sector with a limit on the size of each position. This allows a mutual fund to spread the risk over a wider spectrum and also take full advantage of the growth potential of each stock.

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