Investing is one of the most vital components in anyone’s financial plan. It can be in the form of real estate, stocks, fixed income assets, precious metals, or even works of art. However, the tricks of the trade aren’t readily accessible to everyone, and with economic systems rapidly evolving and new trends emerging every now and then, the ordinary investor can get easily confused and get lost along the way. However, investing need not be that complicated. For the busy businessman, the hardworking expatriate, or the diligent millennial, he or she can delegate all investing responsibilities to an asset manager. This is when Mutual Funds come in.
Investopedia defines a mutual fund as an “investment company that pools the collective contributions of the fund’s participants and invests those dollars in a portfolio of securities.” That is, several private investors combine their money together to create one large investable fund, which is then entrusted to an experienced and well-trained fund manager who will do all the hard work to make the money grow. It is basically similar to opening a savings account except that the ‘interest rate’ is not fixed and may have higher potential for good returns. Among the many advantages of investing in this kind of pooled investment are the following:
- Built-in diversification.
Because each money you contribute to the fund is automatically combined with that of other investors, the purchasing power of the investment is significantly increased. Hence, you get to have immediate access to a wide range of stocks or bonds, which in turn distributes the risks (diversification) to minimize possible losses.
- Top-notch expertise.
Mutual fund companies hire managers, such as those at LOM Financial, that are well-equipped to respond to the changing nature of various investments assets, tap into new and emerging opportunities, and address challenges inherent to investing. They have many years of experience in the business and are probably the most qualified individuals to handle such task.
- Multiple fund choices.
Mutual funds come in many types and varieties: stock funds, bond funds, sector funds, money market mutual funds, and balanced funds. Depending on your risk appetite, investment goals, time horizon, and even personal preferences, you are free to choose which set of assets you would want to invest in.
- Convenience and Affordability.
Unlike creating a personal portfolio which would require a hefty amount of money to meet the desired asset allocation, mutual funds are so much more affordable and convenient to maintain. The benefit of scale translates to lower costs for investors. This is particularly helpful to retirement savers and regular employees who may not have the large capital to build their own basket of investments.