With the volatility found in the stock market, many investors find themselves looking for a safer investment plan to prepare for the future. While savings bonds are the safest investments, their earning potential is fixed at a fairly low rate. Mutual funds, however, can provide a higher level of security than stocks while still maintaining a high level of potential for earning money.
So what are mutual funds? Mutual funds are a series of bonds, stocks, and other investments that are shared by a number of investors. Money from several investors is pooled together to invest in a wide variety of securities that make for a diverse and advantageous portfolio for each investor. Along with their built-in diversity, most mutual funds are professionally managed, making them far safer investments than simple stock portfolios.
When you invest in a mutual fund, the most significant factor for earning money is arguably patience. No matter how well a mutual fund performs, holding out for the long run is critical when looking for a substantial payoff. While playing stocks generally requires pulling out at the right time for the best payoff, when it comes to mutual funds, it is about holding out even through the worst times. Because your money is invested in such a wide variety of ways, it is highly unlikely that you will see major losses in the long run.
Mutual funds tend to have a moderate degree of volatility, but they also have a strong chance at a payoff over the course of several years. Most of us are familiar with the phrase “diversify your portfolio.” Mutual funds are specifically geared to do just that with each being comprised by a combination of bonds, stocks, international investments, and other securities, so if well managed, their potential to earn is very high. The long-term risk is typically fairly low, but in the short term, there tends to be a much higher degree of unpredictability.
You can decide how to split up your portfolio. For a safer investment, you can designate your assets to be situated in 80, 75, 70, etc. percent safe bonds with the corresponding 20, 25, 30, etc. percent. However, for an investment with higher earning potential, you can increase the percentage of stocks and other high-potential investments in your portfolio, similarly increasing your risk of losing money. Selecting a portfolio that consists of only 20 percent bonds with 80 percent stocks and other securities is riskier, but has a greater chance of an excellent payoff.
In sum, if you are looking for an investment with a potentially high payoff and less risk than stocks, and if you are willing to stick it out for the long run, investing in a mutual fund or mutual funds may be the best course of action for you. Make your decisions wisely, seek multiple opinions, and don’t feel rushed. While investing always has its risks, if you remain patient and wait out your mutual fund investment, more likely than not, you will see a positive return.