Investing in mutual funds
Mutual funds are an investment fund that pools the financial resources of a variety of investors and buys a diversified portfolio of stocks and bonds. At inception, the board of directors for the fund set the goals and strategies for the fund. Then, a fund manager is hired to ensure that their directives along with the fund manager’s expertise work in sync for the best returns possible for the fund. Investors have the ability to enter the fund for relatively low up-front investments and have the flexibility to add additional financial resources or sell shares as they desire.
Mutual Funds: What Are They?
The fund manager allows for investors to relax and let a highly qualified expert do the buying and selling as needed for the fund without having to worry about individual stock and bond purchases and sales.
The mutual fund manager is responsible for the buying and selling of bonds and other securities and reports to the board of directors of the fund. Mutual funds area available both as an “Actively Managed” and “Passively Managed” fund. A passively managed fun is one where the fund manager sets the investment criteria with direction from the board and then buys and sells investments to match the strategy. A passively managed mutual fund is the most reasonable type of fund for an investor to own as the costs associated are less than those of an actively managed fund.
In an actively managed mutual fund, the fund manager is much more intricately involved in the research of companies, markets, industries, and the economy to more fully manage the fund on a day-by-day, and hour-by-hour basis. Actively managed funds have highly educated and experienced fund managers that focus their energies on analysis and keep up-to-date with industry and economic news. While the annual expenses of an actively managed fund may be significantly higher than a passively managed fund, often times, greater returns are seen.
Advantages of Investing In Mutual Funds
1. Experienced fund manager trades stocks and bonds as market, industry and economy requires.
2. Diversified portfolio as many mutual funds contain hundreds of different stocks and bonds.
3. Investors don’t have to invest in individual securities which can be cost prohibitive for some investors.
4. Low up-front minimum investment requirements for mutual funds can be as low as $500.
5. Shares can be sold for cash.
Investors can sell all or part of their shares in mutual funds at the Net Asset Value (NAV) rate. This is the actual mutual fund price that is set at the end of each trading day and is the buy/sell price until the following NAV rate is set.
There are tens of thousands of mutual funds for investors to choose from; in fact, there are actually more mutual funds in the United States than there are individual stocks or securities. Well-balanced mutual funds tend to own a balance of bonds and stocks, often times with stocks slightly outweighing the bonds. Analysts agree that mutual funds are one of the best ways to invest money with minimal risk while enjoying moderate and good returns. For a truly balanced portfolio, experts agree that investments in mutual funds provide the right balance of risk and reward.
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