Investors seeking an affordable way to diversify their portfolios should consider the convenience of mutual funds.
Mutual funds provide investors with a professionally managed investment that is typically comprised of stocks, bonds or a combination of both. Within these categories, there are multiple investment styles and asset classes, enabling you to build a diversified investment portfolio to help meet your financial goals.
By purchasing shares in a variety of companies, mutual funds can help reduce market risk and volatility. A well-rounded portfolio may include a number of different types of mutual funds. Working with your financial advisor, you can devise a mutual fund investment strategy that is suited to your needs, bearing in mind your time horizon and ability to withstand fluctuation in the value of your portfolio.
Features of mutual fund investing include:
- Professional management. While there are mutual funds designed to simply mimic unmanaged indices like the S&P 500, most mutual funds are run by investment companies that hire professional money managers to direct the funds. These money managers continually analyze the markets and economy to decide which securities to buy and sell.
- Diversified portfolio. A mutual fund invests in a range of securities. A typical stock fund, for example, might own shares in more than 100 companies. You can get added diversification by buying several different funds with different investment styles. However, it is important to research a mutual fund thoroughly before deciding to invest, as some individual funds are not diversified and owning multiple funds does not necessarily guarantee diversification.
- Low minimum investments. Most mutual funds have low minimum investments, making them affordable and allowing you to make regular contributions. For most funds, initial investments range from $500 to $3,000. Additional purchases can usually be made in smaller amounts, sometimes as little as $25 to $100, and can often be made by directly debiting a checking or savings account.
- Variety of investment styles available. Mutual funds are available in many different investment styles. Stock funds, for example, range from highly specialized, small-capitalization stocks in a particular sector, to large-capitalization growth and income stocks. While bond funds are available in two main categories—taxable and tax-free—they can also be further diversified with holdings of varying duration and credit quality.
Please carefully consider the objectives, risks, charges and expenses of any mutual fund before investing. This and other information can be found in the prospectus, which is typically available through a fund company’s website or your financial advisor. Prospectuses should be read carefully before investing.
Whether your financial goals require growth, current income or a combination of both, your financial advisor can help you build and manage a mutual fund portfolio suited to your investment goals. iBi