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Advantages Of Mutual Funds: What You Should Know

Mar 18, 2008
Mutual funds have been a popular investment vehicle for a long time. They are becoming even more popular, as novice investors realize the advantages of mutual funds. There are numerous advantages and this article will focus on a few.

Diversification

Diversification is such a powerful process. It is the process of investing in different securities in different markets within one investment portfolio. Specifically, by investing in stocks operating in opposite markets, you can significantly reduce the performance risk of any security in your investment portfolio.

When you purchase one mutual fund you are diversifying your investment portfolio instantaneously without having to invest significant cash to achieve diversification.

Economies of Scale

What is economies of scale? Simply put, the more of one item you by at a store the cheaper it becomes per unit. For example, if you were to buy one Coke at dispensing machine, it certainly would cost you more if your were to buy a dozen Cokes at your local super market. The same thing hold true when buying stocks, bonds, and money market instruments. As you can see Mutual Fund companies are able to use their purchasing power to reduce their transaction costs. What this means to you, is much cheaper transaction costs when buying mutual funds.

Divisibility

It is quite hard to buy a lot of stock with a couple hundred dollars. Thanks to mutual funds, this is a problem of the past, since investors can buy in smaller denominations. This enables investor to get in and start investing with minimum amount of funds.

Liquidity

This one great. Your are able to buy and sell your mutual funds as quickly as you wish, as long as the stock markets are open. Could you imagine trying to sell your real estate property quickly? I can't. Buying and selling your mutual funds is fast.

Professional Management

Professional fund managers are responsible for the management of the mutual fund. These professionals have considerable expertise and have already done all the research on the fund you are investing in. This is great since you do not need to do any research. More over, their focus is to ensure you get maximum return on your money while keeping the risk low.

Conclusion

As an investor, you need to focus on the advantages of mutual funds. This is what makes this investment vehicle an attractive one, hence the reason they have increased in popularity. All investors should consider including mutual fund investment as part of their investment portfolio because it will ensure you are well diversified thus, reducing you risk

The more you learn about mutual funds the more you will understand the advantages of mutual funds we have included in this article. Take charge and learn and you will see a steady investment growth year after year.
About the Author
Before you invest in mutual funds, make sure you check John Caldwell's excellent free articles on mutual funds basics .
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