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Investing in mutual funds is nothing new for many experienced investors but there are those who are new to the investment scene and have yet to realize how they can use mutual funds to their advantage. In fact, it is a common perception among many newbie investors that stocks and shares are the only assets worthy of consideration when one talks about the stock market. This paradigm has limited the reach of mutual funds to serious investors only even if everyone would have been well served to have one or two funds in their investment portfolio.
But a simple change in perception actually does not require a complete shift in the way you look at investments. If you are open to considering new investment vehicles and are limited by your virtual unfamiliarity with mutual funds, consider this short primer as your wake-up call to try and embrace the advantages of MFs in growing your portfolio and diversifying your assets without compromising profitability.
The concept of mutual funds boils down to investing in the stock market by pooling money together from many “small-time” investors. Person A gives his $100, Person B another $300 and Person X another $500; the fund is then collectively pooled together and entrusted to a fund manager who decides how to invest the whole fund. This is an important concept because the decisions of the fund manager determine the risk and profitability of the fund.
Bond funds. These are mutual funds exclusively invested in government and corporate bonds. The interest rates are fixed so the likelihood of profit is limited but the risks are also tamed.
Stock funds. These are mutual funds exclusively invested in stocks and shares. If the shares on which the fund is invested appreciates in value, the fund value also rises. The likelihood of profit is high as stocks and shares can appreciate aggressively on the market but the risks are also higher than in bond funds.
Mixed funds. These are funds which are invested in both bonds and stocks. Some are invested on an even 50-50 split while others can be tweaked to have 70-30 splits in favor or stocks or bonds. More cautious fund investors tend to pick this option because it mitigates the risks but does not completely sacrifice profit.
The best benefit with mutual funds is that you can align the profitability and risk level of the fund to your portfolio by making sure that you are informed of the nature of the fund you are investing in. In particular, mutual funds present considerable advantage in the sense that it will allow you to mix your investments between bonds and stocks at the same time. If you are risk-averse and don’t want all your portfolio to be squarely invested in stocks but also hate the limits of bonds, the mutual fund is your best choice at striking a balance between profit and risk.
To invest in mutual funds, all you need do is to get in touch with a fund manager or investment house that offers mutual fund investments. Talk to one today to find out which fund suits your goals best and learn to diversify your portfolio by picking the mutual fund that will give you the best brand of profit and risk mitigation in one go.