With the volatility found in the stock market, consumers without the luxury of high levels of disposable income often find themselves looking for safer place to invest their savings. Savings accounts, long-term savings bonds, and certificates of deposit are stable and safe, but provide limited growth over long periods of time. This is where mutual funds come into play. By providing more security than the stock market and greater potential than basic means of saving money, mutual funds provide a highly attractive option to the middle class investor.
By their very nature, mutual funds are very diverse and perpetually evolving portfolios. They are composed of a wide variety of investments including stocks, bonds, international investments, money market investments, and other securities. These funds are furnished by a group of investors, large and small alike, who pool their money together to form a giant shared portfolio.
Mutual funds are overseen by fund managers whose sole purpose is to make sure their funds perform well. If a component of the portfolio is not performing well, the manager will scrutinize it and decide its fate. Similarly, if a component is performing admirably, they will research its potential to keep up its pace and decide which way to go with it. While an individual stock portfolio manager can cost quite a bit, mutual fund investors get this same service, but at a far cheaper cost. Because you are sharing the fee with every other investor in the fund, you are able to get professional management at a minimal price. Whether you can invest $100, $10,000, or $100,000, you are a member of the same team and receive the same professional benefits.
Another advantage of mutual funds is that, in many funds, you get to decide your level of risk and your potential for earnings. If you are more interested in safety and security, you may want to choose an investment package that focuses heavily on money market assets and other stable investment. For those investors who are interested in a higher potential payoff and are willing to accept a greater level of risk, you may be interested in a portfolio that contains mostly stocks and other volatile investments with a limited focus on stable investments.
Much like stocks, mutual funds maintain a quality known as liquidity. Liquidity refers to the ability of investors to exchange shares easily. If at any point in time you would like to withdraw your money from your investment, you can do so with relative ease. Similarly, mutual funds are easy to invest in for small and large investors alike.
When the stock market is failing you (and most everyone else, for that matter), it may be time to look into mutual funds. With a professionally managed diverse portfolio, a moderate level of risk, and strong potential for a return, the advantages of mutual funds far outweigh those of traditional stock market investing as well as simple stable investing.