If you have read my last article, you have probably learn a few things about the pros and cons of stocks and what necessary measures you need to take to avoid losing money and not knowing what to do next. In this article, I am going to introduce mutual funds and why they are perceived by many people to be much better than stocks. I am also going to walk through the steps and strategies which you need in order to enjoy maximum benefits.
A mutual fund is basically a pool of money from investors from around the world in constructing a portfolio of bonds, real estate, securities and stocks. Below are 6 main reasons why mutual funds are much better than stocks on long-term investments.
Automatic Reinvestment
With this, you can have capital gains and dividends reinvested into your mutual fund automatically and easily without having to pay sales load or extra fees.
Can Be Diversified
Most investors buy more than just 1 stock. In order to grow their portfolio, they need to multiply and diversify their stocks. By diversifying, you reduce the risk without sacrificing your money.
Easier To Manage
When you buy mutual funds, you will not be on your own trying to figure out how to make money without losing money. Instead you will be provided with a professional fund manager who knows how to take care of your investments.
Liquidity
What this basically means is that you can exchange them for cash quickly and easily without any hassles.
Only 1 Investment Portfolio Required
This is much better than stocks whereby you need to come up with several different portfolios just to qualify as a long-term stockholder and investor.
Transparency
Most mutual fund holdings are publicly available. This ensures that you as an investor are getting what you are paying for.
Apart from buying, you can sell them too. Here are the reasons why.
Meeting Your Goals
As with every investor, your objectives could be being debt free, enjoying a blessed and fruitful retirement, travelling around the world, providing for your family and kids in every way possible etc.
But along the way towards your goals, changes are inevitable. For example if your children intends to further their studies especially overseas, you certainly need to adjust your portfolio to reduce the risk of losing money and increase the possibility of earning more.
In this case, you can sell some of your investments to buy fixed income types
Change Of Fund Manager Or Broker
When a fund manager or broker resigns and another takes over, you should consider selling even if you are being told that the replacement will do an equally excellent job.
The truth is the new fund manager or broker may have a different mindset and philosophy of doing things and managing clients.
These are all the reasons why you should choose mutual funds. However as with most investments, you require capital. The amount usually ranges from a couple of hundred to thousands of dollars. But overall, you do not to spend a lot to get started.
