Mutual funds are beneficial for those investors that desire diversity in their investments. They do have their own set of risks though. For instance, mutual funds are not guaranteed or insured by the FDIC. This means that the entire investment could be lost, with no chance of recovery. In fact, if investors lose their initial investment, they are still responsible for any costs and fees associated with the mutual fund. In addition, investors cannot depend on past performance history to predict future performance.
Since mutual funds are, in effect, funds that are pooled together and invested in a diverse set of investments, there are multiple options for a return on investment. This also means that they can be sold extremely quickly, making mutual funds an attractive option for many investors. Many investors choose mutual funds because of the diversification. Furthermore, they are extremely affordable and have a high level of liquidity.
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Mutual funds are very interesting because of their diversification. Furthermore, there is a lack of control. For example, since mutual fund values fluctuate often, it is almost impossible to know what the portfolio is worth at any given time. For those investors that like to take risks, even if they are not big risks, this can make mutual funds exciting. Another aspect that these investors often like is that there are so many choices of mutual funds to invest in.
The varying types of mutual funds help assess the amount of risk that investors are willing to take. This is an interesting consideration and worth exploring. It is an especially attractive risk when the fact that money can be earned in several ways, including dividends, capital gains distribution, and increased NAV (Bodie).
- Bodie, K. M. (n.d.). Essential Investments.
- Know How to Find Information on Mutual Funds and Stocks. (n.d.). Retrieved from Personal Finance: http://personalfinance.byu.edu/?q=node/837
- Mutual Fund Investor’s Center. (2013). Retrieved from Mutual Fund Investor’s Center: http://mfea.com/
- Mutual Funds. (2013). Retrieved from Chase: https://www.chase.com/investments/mutual-funds
- Mutual Funds. (2013). Retrieved from John Hancock: http://www.johnhancock.com/products/mutual-funds.html
- U.S. Securities and Exchange Commission. (2013). Invest Wisely: An Introduction to Mutual Funds. Retrieved from U.S. Securities and Exchange Commission: http://www.sec.gov/investor/pubs/inwsmf.htm
