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Why Invest In Mutual Funds

Mutual funds can be a great way to diversify any portfolio whether you are a beginner or an experienced professional. 

For investors with less experience, mutual funds offer a means of investing in the market with the help of a professional money manager.  Unlike the average individual, money managers have the time and resources to research a wide variety of stocks in many different sectors.  Click here to learn more about mutual funds.

One major reason for investing in mutual funds is to reduce risk through diversification.  A heavily concentrated position can be disastrous if that particular issue falls in price or, worse yet, goes out of business.  While diversification can never guarantee you won't experience losses, establishing numerous positions in different industries can help reduce the amount of risk in a portfolio.  Risk is associated with volatility.  If a portfolio tends to be more volatile, we consider it to have a higher degree of risk.  A dilemma individual investors soon face is the lack of capital to establish a truly diversified portfolio.   For example, if you purchased 100 shares of stock at $50.00 for 20 different issues, your cost, not including commissions, would be $100,000.00.  On the other hand, a very small initial investment in a mutual fund allows you to be highly diversified without having to pay multiple commissions.  To further diversify your portfolio, choose a variety of funds.  When selecting a diversified portfolio of mutual funds avoid a common mistake.  Don't just pick a few good performing funds, ensure they have different objectives with different investments.  Click here to see how to structure a diversified mutual fund portfolio.

Another important reason for investing in mutual funds is not having to time the market.  There is so much information available today there may even be too much information.  This is known as information overload.  Mutual fund managers, along with their team of analysts, are better able to filter out what news is pertinent and react to it by increasing or decreasing holdings as they deem necessary.  Mutual fund managers actively manage the fund's portfolio according to market conditions so you don't have to micromanage it yourself.  Remember that mutual funds are generally for long-term investing; they are usually not appropriate for short-term trading.

Even for the most experienced investors, mutual funds can still serve a purpose.   With so many investment options available trying to micro manage ones portfolio down to the company would be a daunting task.  Invest in the companies you know in the sectors you understand.  For situations you feel may offer a great investment opportunity but you avoid due to lack of understanding or the inability to obtain information, consider a mutual fund.  

• If you have a 401k or other retirement account with a previous employer, click here.
• If you will be transferring jobs soon and wondering what to do with your retirement account, click here.
• If you have mutual funds and wish to consolidate them all together at N.S.C., click here.
• To find out how to invest in mutual funds, click here.

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