Why Invest In Mutual Funds?

The Advantages of Mutual Fund Investing

There’s a vast amount of investing information avaialable on the internet

I’ve been thinking a lot recently about my investment strategy and if I can improve it. It’s always good to take a look at your portfolio from time to time and research your winners and losers before cutting them free or investing more heavily. In my case, I decided to invest solely in funds late last year and so far I’m very happy with the results.

Not only am I having less sleepless nights worrying if the stock I’ve just poured 6 months wages into will plummet overnight, I’m actually seeing better returns than I ever did picking individual stocks. To be honest, I put this down to both my crappy luck and feeble stock picking skills, but it’s fair to say that there’s something to be had by letting a professional pick a basket of stocks for you.

I’ve now set up my brokerage account to drip feed a percentage of my wage into my funds regularly and my intention is to only check how they’re doing once a month. If there’s a prolonged downward spiral I might move some money from one fund to another, but it’ll be once or twice a year, as opposed to every week like I was doing when I was trading individual stocks. I think some of my stress-induced grey hairs might have even started going back to their natural colour!

To clarify the advantages I feel are inherent in fund investing I’ve compiled the list below. Take a look and let me know if you agree.

  • Diversification: When you invest in a mutual fund, you get instant diversification of your holdings by owning a part of each company that your fund invests in.

 

  • Professional Management: Fund managers have more time, expertise, and resources to manage investments than most individual investors do. However, managers have widely varying levels of experience and different track records, which you should examine carefully.

 

  • Convenience: They provide a great deal of convenience for busy investors. Not only is it fairly easy to purchase fund shares, but they also offer automatic transfers and reinvestment of dividends and capital gains. You can also transfer your money from one fund to another.

 

  • Selection: There is a fund available for virtually any type of market sector that you might be interested in. A mutual fund screener is a good way to find high-quality funds for your portfolio. There are also mutual fund newsletters that provide investors with fund profiles and information.

 

  • Liquidity: They offer an important combination of appreciation potential plus liquidity.

 

  • Concise information: Based on mandates from the Securities and Exchange Commission (SEC), fund companies are obligated to provide a simple, easy-to-understand prospectus and investor reports. A prospectus spells out a fund’s goals, strategies, fees, and expenses. The shareholder report describes the fund’s most recent performance.

 

  • Protection: While investors are not insured against investment loss, rules do exist that regulate mutual fund transactions, advertising, and communications with investors.

So what do you think? Individual stocks, mutual funds or a mixture of both? Do you have any experiences of either strategy you’d like to share? Comments below…

FinanceFanatics

Personal finance blogger who's fanatical about financial freedom, investing and making money in the UK

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