Advantages Of Mutual Funds: You Must Know Them

- By: Noel Swanson, 2008-03-18


If you are wondering why this funds are increasing in popularity, the simply answer is investors are understanding the advantages of mutual funds. There are numerous advantages and this article will focus on five advantages.

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 bottled water at a dispensing machine, it would cost you more if your were to buy a dozen bottled water at the super market. The same hold true when buying securities. For this reason, Mutual Fund companies are able to purchase large amount of securities, hence reducing their transaction costs. This results in a much cheaper transaction cost for the investor 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 one is easy, your are able to buy and sell your mutual funds as fast as you want, 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 money managers. These professionals possess lots of experience and someone has done considerable research on the fund you are about to invest in. As a result, you do not have to invest any time in the research. More over, these professionals are here to ensure you are maximizing your return while minimizing your risk.

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.

Before you invest in mutual funds, make sure you check John Caldwell's excellent free articles on mutual funds basics