| Trying To Figure Out What A Mutual Fund Is |
| Articles - Retirement |
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Whether you're a first-time mutual fund investor or a seasoned veteran, you should understand what differentiates single stock investments from mutual fund investing.
Whether you're a first-time mutual fund investor or a seasoned veteran, you should understand what differentiates single stock investments from mutual fund investing. They provide a number of features, including built-in diversification, professional management, convenience, low investment minimums, and a wealth of investment choices all in one package. Mutual funds may diversify within asset classes; for example, a growth fund may invest in a portfolio of stocks. Or the fund may diversify across asset classes when a balanced mutual fund invests in a variety of stocks and bonds, for instance. Whatever the case, diversification generally helps reduces investment risk and provides the potential for better long-term returns. Often, mutual funds belong to a "mutual fund family." You may be able to shift your investment among different types of mutual funds, often with no more than a phone call. That way your portfolio can easily be tailored to suit your financial situation and your expectations about the market. However, transfers among a fund family are considered sales, which may result in paying capital gains taxes if the fund being sold has appreciated. Mutual funds make managing your portfolio very easy. Periodic statements will fill you in on the performance of your mutual fund, transactions within your account, and more. You'll also be kept informed about the taxability of your distributions. When one security in a fund drops, an insightful fund manager may have included stocks that could cushion or offset that loss. Diversification is a big selling factor for mutual funds; there is, in fact, relative safety in numbers. But that's not to say that an investor couldn't diversify via his own stock selections. Remember that diversification cannot eliminate or guarantee against the risk of investment loss; it is a method used to help manage investment risk. Growth and income funds attempt to achieve both long-term growth and current income. They invest primarily in high-yield common stock, preferred stock, and convertible debt (bonds) to generate both growth and income. Because they include a mix of investments, these funds are typically less risky than growth funds. Transacting business with stocks can be a more complicated experience. Placing buy orders, selling shares, or dictating any number of orders can be time-consuming. To some, however, that's just part of the experience. In summary, fund investors are often attracted by the overall convenience. By way of contrast, stock investors may tend to be more comfortable with their own investing skills. Sector funds invest in specific industries or sectors of the economy, such as communications, aerospace and defense, or health care. While they may be diversified within a particular sector, they lack broad diversification. This increases their investment risk. These funds typically seek long-term capital appreciation. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Want to find out more aboutMarket Timing Strategies , then visit Arthur McCain's site. http://market-timing.org/Strategies.aspx |