Mutual funds offer at least four characteristics that many investors find attractive:
- Professional Management
Mutual funds employ professional managers to oversee the operations. These professionals typically have many years of experience in the business of selecting and evaluating investments for the fund. They make the entire buy and sell decisions, relieving you of that responsibility.
Many mutual funds are highly diversified in their investments, meaning they own a number of stocks so that if one or a few turn out to be bad decisions they won’t dramatically affect the whole fund. They may also invest in a number of different industries and different sized companies, depending on the fund. It is difficult for individual investors to diversify to this extent.
There are literally thousands of mutual funds to choose from on the market. You can find funds that cover the whole market or funds that are very narrow in their focus and everything in between. Some funds focus on particular industries, while others may look at foreign markets.
Mutual funds are very convenient. They do most of the record keeping for you and provide you with the forms needed to file your taxes. In addition, many offer services such as check writing against a money market fund and other bells and whistles.