One reason for the popularity of mutual funds is the fact that they are among the most common offerings in employer-sponsored retirement plans. About two out of every three mutual fund investors own shares inside tax-deferred retirement accounts.2 But this alone may not account for their broad appeal. The fact is, mutual funds offer many attractive characteristics, including some that may help take the complexity and uncertainty out of investing.
Professional Management
Image via WikipediaWhen you purchase shares in a mutual fund, to some extent you are also buying the expertise of the fund manager and the fund management company. Fund managers carefully research, select, and supervise all the assets a mutual fund holds, buying and selling in an attempt to maximize the fund’s return based on its objectives. Although you have a certain dollar amount riding on the fund’s performance, it’s likely that the fund managers have an even bigger stake: their reputations. Of course, there is no guarantee that a professionally managed fund will not lose money.
Diversification
Of all the strategies recommended for managing risk, diversification is near the top. Mutual funds offer the opportunity to invest in a wide range of asset classes, industries, and securities. In fact, some mutual funds invest in hundreds of securities, providing a level of diversification that individual investors might find difficult — and expensive — to duplicate on their own. Diversification does not eliminate the risk of investment loss; it is a method used to help manage investment risk.
Shareholder Privileges
Mutual funds offer high liquidity and flexibility. For instance, if you decide today to redeem shares (held outside an employer’ retirement plan), your funds could be available to you as early as tomorrow. Some funds will even allow you to write checks against your account.
They also enable you to customize your portfolio and quickly make adjustments when your situation calls for reallocation or rebalancing. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.
Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
No matter what your investment objectives and long-term goals may be, it’s possible that there is a mutual fund that offers what you’re looking for. Taking advantage of the many benefits of mutual funds can help you pursue your financial goals.Start by contacting us at 630-548-9600 to find out more regarding Naperville Financial Services
1–2) Investment Company Institute, 2009
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.
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