The Pros And Cons Of Mutual Funds

Submitted By nguyendn07
Words: 1092
Pages: 5

Congratulations to you both on your inheritance and taking your first step towards investing for your future. When talking about investing in stocks, bonds, mutual funds and etc.., there are so many options and each has its advantages and disadvantages. Keep in mind that your current circumstances and personal financial goals play a huge role in deciding which feature will be more advantage towards you and your family. I believe that mutual fund is a smart way to start your investment journey. Unlike bonds or stock, mutual funds offer features such as professional management and diversification. Investment companies will have professional fund managers to research, select, and monitor the performance of the securities for their fund’s portfolio. In addition, mutual funds is affordable and allows you to diversify your investments. Diversify your investments simply means spreading it across several choices in different companies and industry sectors. One of the advantages of this investing strategy is to help lower your risk and provide safety if a loss in one investment incurred. The loss is usually offset by other investments. However, keep in mind that investing in mutual funds also have some disadvantages. There are many fees associated with mutual fund investments, such as management fee, distribution fee, sales charge, redemption fees, exchange fee, and etc… And that will depends on the choices of investment that you make. To begin, I will tell you about some types of funds and investment options. Funds are separated into three categories: stock, bond, and other funds. Not all stock funds are the same, as well as bond funds and other funds. Stock funds include aggressive growth fund, growth funds, income funds, global funds, international funds, large-cap, midcap, small-cap funds, regional funds, and sector funds. Aggressive growth funds and growth funds seek large capital gains and rapid growth. However, they may not pay a regular dividend. In contrast, investing in stocks in equity income funds pay regular dividends. Global stock funds and international funds invest in stocks throughout the world. Small, mid, and large cap funds invest in stocks of companies according to their capitalization. Next category is bond funds, which strategies is to produce higher yields, which may come with higher risks. These include high yield; long-term, short-term, intermediate corporate bond funds; long-term, short-term, intermediate U.S bond funds; municipal bond funds; and world bond funds. Long-term, short-term, intermediate bond are categorizes based on the maturity time of the investment. Lastly, other funds category contains asset allocation, balanced, funds of fund, lifecycle, and money market funds. In comparison to other funds, money market have relatively low risks and they can invest in safe, highly liquid, short term investments issued by the government. Another factor to consider when thinking about your long-term investment strategies are the costs and fees associated with one type of investment compares to other alternatives. This can help you decide which option is best suited for you, your family, and your financial goals. Mutual funds are broken down into load funds and no-load funds. The main difference between these two are the sales charge associated with load funds. Unlike no-load fund, you must pay a sales charge every time you purchase shares. The reason for the sales charge, also known as commission charge, is because you do not deal with investment companies on your own. You will receive advices from the salespeople regarding the mutual funds and when to buy or sell. The sales charge may be as high as 8.5% and the average charge is between 3-5%. In addition, there are management fees and other charges that you will have to pay as an investors. There are many resources out there for you to utilize to help you determine which types of fund is best suited. These include professional advisory services, the