THE BEECHMONT CREST ONLINE GUIDE TO STOCKS AND INVESTING
MUTUAL FUNDS
Don’t have the time, expertise, or risk tolerance to play individual stocks? Then a mutual fund might be the right investment choice for you.
A mutual fund is an investment company in which your investment dollars join forces with the dollars of thousands of other investors. All of this money is then invested and managed by a professional portfolio manager. Mutual funds invest in a wide variety of securities-- stocks, bonds, currencies, etc.
You can purchase shares in a mutual fund for a relatively small investment-- usually a few hundred or a few thousand dollars. You can then add to your shares for an amount that is typically smaller than the initial buy-in. (Example: if $1000 is the minimum initial investment, then additional shares may be available in $100 increments.)
Mutual funds come in a variety of flavors. Some are extremely conservative and buy only government bonds and blue chip stocks. Others are highly aggressive, favoring foreign markets and start-up firms. There are also many that strike a balance between the two extremes.
The main advantages of mutual funds are:
Professional expertise: The fund manager worries about picking individual stocks so that you don’t have to. And fund managers have an incentive to choose wisely. If a fund doesn’t perform well, then its manager can be replaced.
Diversification: It is difficult for a small investor to acquire a truly diversified portfolio by buying individual stocks. A single mutual fund, however, may include as many 100 different securities.
Transfer Privileges: When an investor purchases shares in a fund that is managed by a financial services company (ex: Fidelity, T. Rowe Price), he or she can often transfer shares to different mutual funds within the same class or family. This gives the investor ongoing flexibility, as the market fluctuates and investment goals change. Often the transfer transactions can be completed via an online portfolio management system.