January 18, 2018

What Is a Mutual Fund?

Today, mutual funds are one of the easiest, most convenient financial instruments people can invest in. Before consulting a Dallas financial planner, you should know what they are and how they work. This way, you are completely aware of just how much impact your financial decisions have.

 

What Are Mutual Funds?

A mutual fund is a professionally-managed investment scheme that enables investors to contribute together to purchase a collection of stocks, bonds, and other securities that might otherwise be more difficult to get separately. Imagine the mutual fund as a basket that can hold certain types of stocks, bonds, or a combination of the two. Everything the basket holds creates a portfolio.

 

What Are the Advantages of Mutual Funds?

Professional Management – A mutual fund’s main advantage is that there is a professional manager in charge of picking stocks and managing investments. Investments will thus be made and monitored carefully by a Dallas financial planner with the right experience and knowledge.

Simplicity – Buying a mutual fund is easier than ever before. In fact, numerous banks have their own in-house mutual fund that only requires a minimum investment.

Diversification – Owning shares in a mutual fund means spreading the risk across a variety of holdings and minimizing it, as opposed to owning individual stocks and bonds. The idea is simple – don’t put all your eggs in the same basket!

 

What Are the Disadvantages of Mutual Funds?

Costs – Creating and running a mutual fund can get quite expensive. The fees can vary from fund to fund, so it is especially important to pay attention to them, as they can accumulate rapidly over the years.

Liquidity – A mutual fund will allow the investors to cash in their shares at any time. The catch, however, is that the cash is placed at the end of each trading day, as opposed to throughout the day, like normal stock trades.

Active Management – The fund may lose money, but the manager will still get paid, making it an important aspect to take into account.

Mutual funds can be a smart investment for almost anyone, but remember – don’t make any financial decision without knowing the mechanism behind it and what the possible consequences are.

Get in touch with us at Exemplify Financial. We’re a professional team of consultants that can advise and guide you so that you only get the maximum return on your investment.

 

Sources:
https://www.investopedia.com/university/mutualfunds/mutualfunds.asp

Advantages and Disadvantages of Investing in Mutual Funds

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