There’s a good reason why mutual funds are the first investment choice for the DIY investment crowd. Now, if you’re just a beginner and you want to know why mutual funds can be a good fit for your investment needs, let’s take a look at some their biggest benefits.
They are Easy to Understand
If you don’t have any experience with investing or any economics knowledge, you can still be a successful mutual funds investor. Here’s a quick explanation of mutual funds: this is a type of investment that enables you to pool your money together into one, professionally-managed investment.
They can be invested in bonds, stock, cash or any other type of asset. Simply put, mutual funds are “baskets of investments” with every basket holding a dozen – or possibly even more – of asset types, like bonds or stocks.
So the concept is pretty simple: if you buy a mutual fund, you’ll buy a basket of assets. There are many other things to know about mutual funds, but that’s the basics, and compared to other financial products, mutual funds are not so hard to understand.
Mutual Funds are Also Easy to Buy
Mutual funds are not only easy to comprehend, but they are also easy to buy since you can find them at many discount brokers, banks, brokerage firms and even insurance companies. You don’t have to leave your home in order to start investing in mutual funds.
You can simply Google around for a few minutes, and find a mutual fund agency online. Once you decide that the company is worth your time, you can simply create an account and start investing within minutes. Once again – simple as that.
They Come in Many Different Categories
After a few years, most investors start diversifying their portfolio. In some cases this means investing in other investment vehicles. Luckily, there are many mutual fund types and categories, so you won’t have to start using other investment vehicles.
For instance, you can invest in funds that cover all of the main asset categories – bonds, stocks and cash – but you also have a number of different categories and sub-categories. Another option is to venture out into specialized areas like precious metals or sector funds.
Mutual Funds are Cheap to Manage
When you compare mutual funds to other individual securities or actively-managed portfolios, you’ll see that the costs are significantly lower. When you add up the yearly fees, transaction and investment advice costs you still pay a lot less than you would for the average portfolio of stocks.
This is because there are far more factors that affect the costs of managing a portfolio, such as the size of transactions, the number of trading activities and different taxes. So if you’re not planning to invest a large sum of money right out the gate, mutual funds are a way to go.
They Have a Number of Uses
Last but not least, all of the benefits we listed above overlap into flexibility and simplicity. If you want, you can invest your money into one single fund, or you can invest in a number of funds – the choice is all up to you.
You have systematic withdrawals, dividends, both short- and long-term savings and a wide variety of other investment strategies to choose from. This is what makes these funds one of the most popular investment types among newbie investors.
Don’t get us wrong; there are some risks involved in buying mutual funds. The market fluctuates from time to time, and some of the advantages come at a price – some of them even have monthly fees. Nonetheless, mutual funds are a great investment for investors with limited knowledge, so if you’re still inexperienced, they a perfect for building your portfolio.