The popularity of mutual funds is increasing every day. It is an investment vehicle that has been around for the longest time, however as more investors discover the advantages of mutual funds, the more popular it becomes. There are five advantages I would like to discuss in this article.
Diversification
What is diversification? Simply, it is mixing different investments within one investment portfolio. More over, by investing in stocks in different markets and offsetting them with bonds and money market instruments , you can considerably minimize the performance risk of any security within your investment portfolio.
By purchasing a mutual fund you are directly diversifying your assets portfolio without having to commit lots of money to reach diversification
Economies of Scale
What is economies of scale? Simply put, the more of one item you by at a store the cheaper it becomes per unit. For example, if you were to buy one Coke at dispensing machine, it certainly would cost you more if your were to buy a dozen Cokes at your local super market. The same thing hold true when buying stocks, bonds, and money market instruments. As you can see Mutual Fund companies are able to use their purchasing power to reduce their transaction costs. What this means to you, is much cheaper transaction costs when buying mutual funds.
Divisibility
As an investor, it is quite hard for me to buy a lot of stocks with a couple hundred dollars. Because mutual funds come in smaller denominations, it is easier for me to start investing with minimum amount of money.
Liquidity
This provides great advantage. The ability to buy and sell your mutual funds rapidly, as long as the stock markets are open. Could you imagine trying to sell your real estate property quickly? I can't. Buying and selling your mutual funds is fast.
Professional Management
Mutual funds are managed by professional fund managers. These professionals have extensive experience and have done extensive research on the fund you are about to invest in. Bonus, you do not need to do any research. As you know research takes a lot of time. More over, their objective is to ensure you get maximum return on your money while keeping the risk low.
Conclusion
The advantages of mutual funds make this investment vehicle an attractive one, hence the reason they have increased in popularity. Novice to expert investors should consider including mutual fund investment as part of their investment portfolio. This will ensure you are well diversified and will minimize your risk.
The more you can learn about mutual funds the greater your understanding will grasp the advantages of mutual funds. Focus on mutual funds and you will see a steady growth in your investment portfolio.
Diversification
What is diversification? Simply, it is mixing different investments within one investment portfolio. More over, by investing in stocks in different markets and offsetting them with bonds and money market instruments , you can considerably minimize the performance risk of any security within your investment portfolio.
By purchasing a mutual fund you are directly diversifying your assets portfolio without having to commit lots of money to reach diversification
Economies of Scale
What is economies of scale? Simply put, the more of one item you by at a store the cheaper it becomes per unit. For example, if you were to buy one Coke at dispensing machine, it certainly would cost you more if your were to buy a dozen Cokes at your local super market. The same thing hold true when buying stocks, bonds, and money market instruments. As you can see Mutual Fund companies are able to use their purchasing power to reduce their transaction costs. What this means to you, is much cheaper transaction costs when buying mutual funds.
Divisibility
As an investor, it is quite hard for me to buy a lot of stocks with a couple hundred dollars. Because mutual funds come in smaller denominations, it is easier for me to start investing with minimum amount of money.
Liquidity
This provides great advantage. The ability to buy and sell your mutual funds rapidly, as long as the stock markets are open. Could you imagine trying to sell your real estate property quickly? I can't. Buying and selling your mutual funds is fast.
Professional Management
Mutual funds are managed by professional fund managers. These professionals have extensive experience and have done extensive research on the fund you are about to invest in. Bonus, you do not need to do any research. As you know research takes a lot of time. More over, their objective is to ensure you get maximum return on your money while keeping the risk low.
Conclusion
The advantages of mutual funds make this investment vehicle an attractive one, hence the reason they have increased in popularity. Novice to expert investors should consider including mutual fund investment as part of their investment portfolio. This will ensure you are well diversified and will minimize your risk.
The more you can learn about mutual funds the greater your understanding will grasp the advantages of mutual funds. Focus on mutual funds and you will see a steady growth in your investment portfolio.
About the Author:
Before you invest in mutual funds, make sure you check John Caldwell's excellent free articles on advantages of mutual funds.
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