One way for many people to invest in the stock and bond markets is through mutual funds. These are pools of money from several investors who have a similar goal, such as capital appreciation or high current income. The money is invested by a professional manager into a group of securities, known as a portfolio.
How does a mutual fund portfolio manager help?
Although they have risk and aren't for everyone, mutual funds are the choice of many people who have long-term investment goals. One key reason is that mutual funds use professional management. Many people lack the time or expertise to keep up with changes in the market. The portfolio manager has the knowledge to figure out what to buy and what to sell.
To help you keep track of your investments, mutual fund companies provide regular reports on your investments. These will help you track your performance and make life a little easier at income-tax time, rather than having numerous separate securities to monitor.
Why is portfolio diversification important?
Mutual funds are also diversified. The combined assets of hundreds or thousands of investors allow the portfolio manager to buy a range of different securities that fit the investment objective of the fund. This can spread out the risk of the portfolio because different securities will perform better at different times. Diversification won't eliminate all risk, of course, but it may help balance the risks in your portfolio. Check out the benefits of diversifying your portfolio and how to make it happen.
Look for mutual funds with a low or no-minimum investment
There's another reason that mutual funds are popular with many investors: many funds have low minimum investment requirements. That makes them affordable to many different types of investors and allows you to make regular investments rather than a large lump-sum payment. Try to start investing small amounts early if you can, so that your money has a chance to grow.
