There are advantages and disadvantages when it comes to
investing, and mutual funds are no exception.
Let’s list down some of those pros and cons that come along
with it, starting with the advantages:
Advantages:
Economies of Scale
This is the cost advantage that shows up when the output of
a product increases.
When you buy economies of scale, you can be spared of a lot
of commission charges that you need in order to have a diversified portfolio. If
you buy only one security at a time, it will lead to high transaction fees,
which will then consume a considerable chunk of the investment. Having a
hundred dollar per average person will only lead him or her to buying a small amount
of stocks but if you take part of mutual funds, that amount of money will buy
many mutual fund shares.
Diversification
This is the mix of investments and assets within a portfolio
in hopes of reducing risk. It is one of the advantages to investing in mutual
funds.
Diversification is seen when you buy individual stocks in
retail and offset them with stocks from the industrial sector. It can be truly shown
through a portfolio that has securities with different capitalizations and
industries, and bonds that vary in issuers and maturities.
Professional
Management
Mutual funds are run by managers. These people spend days
doing research regarding securities and devising investment strategies, meaning
that these funds can provide experience in a low-cost way for individual
investors, which can then help them benefit from professional money management.
Easy-Access
Mutual funds can be bought and sold easily, seeing as it
trades on the major stock exchanges. This qualifies mutual funds as high liquid
investments.
So there you go. The first part of this two-part discussion
regarding the pros and cons in investing in mutual funds.
These advantages mostly make mutual funds appealing for the
younger, novice or other individual investors who no longer wants to actively
manage their money.
Mutual funds offer high liquidity, and are mostly easy to
understand. Even if you don’t have a lot of money to spend and spread around,
it still offers good diversification. And of course, it has potential for good
growth.
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