Three reasons
1. Diversification - allows you to own shares in several companies for a fraction of the price
2. Ease of Reaserch - Mutual Fund companies hire and train very bright people who do the research and buy based on years of knowledge that would take you forever to do/obtain
3. Protection - just as diversification gives you a broader based portfolio, a good balanced mutual fund will provide some protection from slumping markets, sectors, etc
2006-10-04 09:26:42
·
answer #1
·
answered by Trevor R NYC 3
·
0⤊
0⤋
The Mutual Fund is the easiest way to spread your money into different companies and investments without having a large amount of cash.. Just like the old saying says don't put all your eggs in one basket Mutual Funds lower your risk by diversifying in the market. Mutual Funds are also managed by a professional fund manager who has more knowledge than the average investor which in turn should yield you more money.
When you are looking at Mutual Funds find out what the expense ratio is as some funds have high management fees.
Good luck
2006-10-04 09:34:11
·
answer #2
·
answered by skm 2
·
0⤊
0⤋
Mutual funds are appropriate for some and the wrong investment for a growing number of people.
For me, I would NOT invest in mutual funds if it weren't for having a 401K.
Overall, Mutual funds are not good (once you're educated) and most people should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).
Here's why.
First of all, mutual funds exist to take average person's money.
Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds. As was stated over 80% of the mutual funds out there can't even outperform the market. That's VERY SAD!
Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.
Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in NOT "losing" you lots of money. That way you stay with them and they continue to collect their fees.
Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.
Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.
Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).
Convniced yet? Need more?
Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc. or right now, Healthcare, Retail, and insurance!
Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like microsoft, verizon, home depot, cisco, ebay which have been sideways for years? I think not.
A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but without the extra overhead!
See amex.com (american stock exchange) or ishares.com, or holders.com for more info.
You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many).
Let me know if you have further questions.
Hope that helps!
2006-10-04 20:44:03
·
answer #3
·
answered by Yada Yada Yada 7
·
0⤊
0⤋
Not all mutual funds are created equal and one ends up having to sort though them like they would stocks. ETFs are passive mutual funds and here is the mutual fund that people should get into. You know what's in it since they don't trade in and out. You also don't have to pay internal taxes as you would with standard mutual funds. Internal taxes happen when somebody else in the group sells their shares of the mutual fund. ETFs also trade like stocks. With mutual funds you buy and sell based on the closing price. You can't get out of a market crash if you have a standard mutual fund.
With a mutual fund, you are diversifing yourself. For instance you can invest in a lifetime/lifestyle fund and they will do everything for you including changing the stock/bond ratio as you get older.
2006-10-04 13:17:25
·
answer #4
·
answered by gregory_dittman 7
·
0⤊
0⤋
It's less homework for you. You are hiring someone to do your due diligence that is most likely more educated with investments than you.
You can invest into many different companies at the same time which many investors dont have the time/capital to do so. This also goes along with diversification which can be done with one mutual fund.
2006-10-04 09:21:41
·
answer #5
·
answered by MacCurious 2
·
0⤊
0⤋
Investing in a stock mutual fund allows you to invest in many different stocks at once. This gives you a diversified portfolio which is supposed to minimize risk while maximizing returns. Experienced fund managers do the work of deciding which stocks to invest in and you just decide which fund to invest in. You can look at long term past results of each fund to help you decide.
2006-10-04 09:20:21
·
answer #6
·
answered by wwbrad90 3
·
0⤊
0⤋
Mutual funds allow small investor to invest in the stocks without much of complex studying of fundamentals and technicals.
Secondly since MFs keep investing and rotating the portfolios as per the market information, a small investor benefits from the investments,
Of course to reap full benefits of investments in MFs, you need to know where your money is being invested by the MFs and you need to keep you investments for fairly long period of time.
2006-10-04 17:10:45
·
answer #7
·
answered by Nitin G 7
·
0⤊
0⤋
1. Moderate Risk
2. Knowledge of Professional Investors/Fund Managers
2006-10-04 15:19:28
·
answer #8
·
answered by bargarhwala 2
·
0⤊
0⤋
Diversification.
You can choose Mutual Funds to fit your asset allocation at the risk level that is good for you. If you pick inexpensive funds with good track records...... you can have a sizable amount of money in 20 or more years. Good luck!
2006-10-04 15:47:29
·
answer #9
·
answered by Common Sense 7
·
0⤊
0⤋
there is no hard n fast rule that u should invest...
n moreover these days Stock market and mutual funds r reputed as one of the mose riskiest business ...across the globe
2006-10-04 09:28:59
·
answer #10
·
answered by PIKACHU™ 3
·
0⤊
0⤋