Mutual Fund Investing Pros and Cons



Posted: Friday, May 05, 2006

by Mika Hamilton
Global Investment Institute

Mutual funds have often seemed like a golden investment because what can be a relatively small amount of money ends up being greatly diversified. The core idea of this kind of investment goes back to the basic rule of, don’t put all your eggs in one basket.

In recent years it has become more apparent that there is no such thing as a guaranteed investment. Companies that appear to be solid from all angles can quickly fall apart no matter how big they are. Because of this you would never want to invest all of your money in one or two companies because no matter how good the investment may seem, anything can happen tomorrow however, when you invest in hundreds of companies that each look like they will have positive returns then even if a high amount of them fail the others should inevitably make up the difference.

Since so many of us can not afford to build such a diverse portfolio on our own, a mutual fund is a great idea. That alone is perhaps the best pro a mutual fund has over things like stock by stock investments. Of course it is important to know that, even over a long period of time, there is never a guarantee your initial investment will pay off. Mutual funds are by no means immune to mistakes and their chosen stocks are by no means immune to failure.

Saying that, if the mutual fund is failing or it has made enough money that you wish to cash out, they are a very liquid form of investment. Unlike some other group investments you can withdraw your money from a mutual fund with ease. Of course there are fees associated with this and successful investing comes with a high tax.

Mutual funds also offer very little control. In fact, once you have chosen a mutual fund to invest in your control of your money has pretty much come to an end. With most, of, if not all of, these funds the investor not only has no say in what companies get invested in but they can not even find out what the mutual fund’s portfolio looks like. Aside from the funds being unwilling to divulge all of this information they are also often unable to seeing as the day to day trading is so vast.

On a similar note, mutual fund investors can not see a day to day value of their investment whereas an investment in an individual stock can be checked up to the second. This means that between statements the investor is pretty much in the dark about how their money is doing, let alone what it is doing.

All of this being said, mutual funds are a diverse investment that allows you to buy in with limited money. Perhaps their best perk is that your money ends up being professionally managed by people who are often amongst the best in the business.

Mika Hamilton is a private investor, trader and editor of the Global Investment Institute website as well as author of various e-books and newsletters such as the Investing For The Beginner E-Course.
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» left by gorgeous 5 years 174 days ago.
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» left by Lala
from bushwik 2 years 317 days ago.
In our enrichment we learned from this article thank you
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