Over the last few years, mutual funds have grown in popularity to the point that most investors are using them. The popularity of mutual funds is no surprise when you consider that they are one of the easiest investments to use and require very little knowledge of the financial markets. There are 4 main advantages that mutual funds offer every investor, as you will learn in this article.
Mutual funds offer professional management of your investment dollars and this is the first advantage of mutual fund investing. Run by fund managers who are essentially watching over your investment daily are mutual funds. Without paying huge management fees, there is almost no other place where you get that kind of investment management.
Mutual funds are extremely liquid and this is the second advantage of mutual fund investing. Any investor can sell his shares in a mutual fund any day that the stock market is open. Compare that to investing in real estate, CDs or even stocks that have low trading volume which can takes weeks to months to liquidate your stake. The liquidity of mutual funds gives any investor the ability to get out of the investment quickly if needed.
The third advantage of mutual funds is the diversification that they offer. Investing in tens or even hundreds of different stocks, money markets, or bonds are mutual funds. Resulting in very high trading fees is trying to duplicate this type of diversification in your portfolio and there will also be huge headaches from tying to monitor hundreds of stock positions. Because of this, we are led to the fourth advantage of mutual funds which are lower fees.
Due to their ability to take advantage of economies of scale, mutual funds have very low fees. Since mutual funds are pooling the investment dollars of so many investors they can buy stocks in larger quantities which leads to lower fees for mutual funds investors. Numerous mutual funds have fees that are under 2 or 3%.
More and more investors are putting their money in mutual funds which is why they are growing at a feverish pace. But considering the great advantages that mutual funds offer the average investor all the way up to guy with the multi-million dollar portfolio, it’s really no surprise.