When a new investors starts to explore the markets, they often ask themselves what to invest in. Mutual funds can be a very viable option. So what exactly is so good about mutual funds? Why is it becoming so increasingly popular with the crowd? Why should you answer the question of what to invest in with mutual funds?
Why Mutual Funds?
To answer that question, we have to first understand that financial instruments and investment mechanics are seemingly complex things that a majority of us without proper exposure or training, simply do not understand. Yet, we know that if we make the right financial investing decisions, it is a means to riches, or at least financial freedom.
With this in mind, we seek out mutual funds because of one important factor – Professional Money Management.
When we invest our money in a mutual fund, we are essentially giving our money to a group of educated people who will handle the money management on our behalf. These people are well versed in the game of money and understand how to make sound investing decisions. By giving our money to them, we are assured that our money is being put to good work. This also saves us the hassle of consistently doing research on the stocks or bonds that we can buy. It also doesn’t hurt that the goal of the fund manager is aligned to the investors. The higher the mutual fund price, the higher the manager can charge for commission.
Besides this, here are a few more reasons why investing in mutual funds makes so much sense.
1. Risk Diversification – Owning shares of a mutual fund spreads your money across a variety of stocks, bonds and other assets, effectively putting your eggs in many baskets. The whole idea behind diversification is such that you can lower your risk if a company or sector does poorly. Achieving diversification is much easier when investing in mutual funds because it is difficult for an individual to invest in and manage more than a hundred assets at a time.
2. Affordable – Buying mutual funds reduces the cost of commission if you were to buy the same assets individually. It also allows you take a position in a lot of assets at the same time with a small amount of investment. Of course, the downside of this is that you will need to pay for the fund managers’ salary in the form of a management fee per month or per quarter.
3. Low Complexity – Mutual fund investment is very simple and straightforward. It can be easily purchased from a lot of banks and well-known Wall Street firms. It also does not have involve more complicated trading mechanics such as short selling and leveraging. In other words, if the price of shares increase, you make money.
So if you seeking for an answer on what to invest in and the criteria listed above when making an investment, mutual funds will be the right way to go!