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What are the benefits of investing in Mutual Funds?
Time.  If you don't have it to do your own Stock Homework weekly, then you should invest in a mutual fund.  Quite simply, that could be the most compelling reason to invest in a mutual fund.

Of course, there are several additional benefits of investing in a mutual fund versus individual stock trading, as shown below...

Top Five Benefits as reasons to invest in a Mutual Fund:

NEXT: Understanding Mutual Fund Fees >>

Benefits of Mutual Funds vs. Individual Stocks:
1.  Diversification
  If you haven't embraced the idea of diversification, you must. A diversified portfolio is one that creates a "diverse" mix of different kinds of stocks in non-similar industries, such that you make your best effort to balance your risk of overall loss of value of your portfolio.

Put more simply, you need to have many different stocks so that you're not putting all of your eggs in the proverbial "basket." This manages your risk, and is something that requires vigilance over the changing environment for each specific stock as well as the market overall. Diversification is an ongoing exercise that requires frequent adjustments by trading away and buying new stocks to maintain this risk balance.

By investing in a mutual fund, you are receiving the benefit of diversification of many stocks, without the requirement of large cash outlays to do this yourself. You are investing in a "pooled" fund of cash that supports purchasing these many stock types... again, without having to put up as much cash as you would have to if you were attempting to do the same thing by yourself.

2.  Professional Management
  This is a simple concept: The mutual fund manager is a better investor than you are.

You are receiving the benefit of both the firm's experience as well as the individual experience and expertise of the fund's manager. As individuals, most of us cannot compete with what they have learned from that cumulative experience trading in volatile markets. They will likely react, and hopefully correct their fund's stock positions, much faster (and therefore in a manner resulting in more profit/less loss) than we would likely be able to do.

3.  Volume Buying/Selling
  Again, a very simple concept: volume discounts...

The more of anything you can buy, the more you can negotiate, and the cheaper that product becomes. It's called "economies of scale" and applies to investing just as it does a case of wine. If you buy one bottle, it's usually 10-20% more per bottle than if you buy a case to receive that 10-20% discount.

4.  Lower Total Cost To Invest In Many Stocks
  Simple math:

If you had to pay transaction and broker fees to purchase 100 stocks in a portfolio, you would quickly see that it would eat into any gains you might experience (or worsen any loss you have) because of those fees. A mutual fund enjoys its economies of scale in purchasing power, and has more money to purchase higher-priced stocks (e.g., Google. at $400+ per share), so it does not have to make fractional purchases (or mixed-lot purchases that are not in increments of 100) as you likely would have to get into the stock. Therefore, a mutual fund will always offer a lower total cost to you to invest in many more stocks than you could on your own.

5.  Liquidity
  Another great advantage provided by mutual funds is that you can get in and out of the fund without restrictions (excluding Hedge Funds and others which may require minimum time requirements to stay in).

Be careful, however, given that some mutual funds may have fees attached to the sale of its fund shares. Also, note that, unlike most stocks which trade continually during the trading session, mutual funds trade only once a day, after the fund's Net Asset Value (NAV) is calculated.


NEXT: Understanding Mutual Fund Fees >>


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