Mutual funds are some of the most popular investment vehicles on the stock market. These funds are investment programs that act like individual stocks, but are actually made of a wide range of different investments ranging from stocks, bonds, and sometimes even commodities.
You invest in a mutual fund by buying shares of the fund. Professionals then manage and "bean count" for you. Most mutual funds have shares and buy-in prices that start as low as $100.
Are you curious about the benefits of investing in a mutual fund? Here's why people are saying mutual funds are one of the best options for both beginner investors and veterans alike.
Diversity is the name of the game.
Many of the largest benefits of investing in a mutual fund come from its diversified nature. Having a variety of different investments all crammed into one "stock" means that you have way less chances of serious loss.
The best way to illustrate this would be to compare traditional stock investing with a mutual fund. If you had a traditional stock portfolio with three different companies, and one company fails, you'll have a major loss. You might not even have any way to get the money you lost back.
If one of the companies doesn't fare well in a mutual fund, on the other hand, you still will be able to keep most of the value of the mutual fund in question.
You don't need to monitor its performance as heavily as you would a traditional stock portfolio.
Traditional stock portfolios require an eagle eye when it comes to the way that you monitor them. You often will have to keep abreast of business trends, figure out whether the company's overvalued, and also determine whether each stock is actually worth it.
Mutual funds are professionally managed by people with years of training under their belts. This means that they will end up doing all the heavy monitoring work for you—and that mutual funds are an ideal "set and forget" type of investment.
For a beginner, the benefits of investing in a mutual fund include the ability to let others do the work for you.
One of the hardest parts about investing in the stock market is choosing stocks that you actually feel confident in. All the weird stats and symbols are pretty intimidating for newbies, and at times, they can even be confusing for folks with serious skin in the game.
Mutual funds are professionally managed for you, which means that you don't have to worry about doing all the research on it. If a stock they choose doesn't perform, they will sell it and replace it for you.
As long as it's a highly regarded fund, you probably will do alright with it.
They have lower buy-in prices than ever before.
It used to be that investing in a mutual fund was a huge deal. You would need as much as $3,000 to $6,000 just to be able to invest your money in this vehicle. That's a high price to pay to reap the benefits of investing in a mutual fund.
While the price still averages out to around $2,000 to start investing in certain funds, it is very possible to invest as little as $100 to begin with in certain programs. For people who want great returns without much to offer, this may be one of the best ways to invest $100.
Quite a few mutual funds actually beat the market at its own game—by a large margin, too!
The 10-year return on the S&P 500 index has been around 8.5 percent per year, on average. Some of the best mutual funds for every budget beat this number by a pretty huge amount.
The difference is staggering. To illustrate this, I'll compare investing in a mutual fund versus investing the same amount of money in the stock market index. PRIMECAP Odyssey Aggressive Growth, for example, has an average annual return of 15.06 percent over 10 years.
Let's take a look at what would happen if you invested $1,000 and waited 10 years, shall we?
Investing in the S&P 500 outright would turn your $1,000 into $2,260.98 after 10 years. If you invested in PRIMECAP Odyssey Aggressive Growth (POAGX) instead, you would have $4,066.71 by the end of your decade.
They also tend to be one of the more stable stock-related investments out there.
Stability is one of the better benefits of investing in a mutual fund. This allows you to get better long-term results over the course of 3, 5, 10, or even 20 years. That's the perk of having a fund manager handle it.
The need for stability and a non-aggressive portfolio becomes more important with age. For people who want a stock alternative that is a little more stable than others for their retirement, mutual funds are a great choice.
They offer a lot more liquidity than other similar forms of investments.
Perhaps one of the biggest benefits of investing in a mutual fund is the freedom you get with your money. Mutual funds allow you to buy and sell shares whenever you want, so if you're using it as a savings vehicle to help you afford a new house, you can sell your shares whenever you need to without worry.
Hell, mutual fund juggernaut Vanguard even has an app to make buying and selling fund shares easier than ever. Other similar investment vehicles like bonds or a money market account do not have that perk—and never will.
It's a cheaper way to get stocks you want.
If you're trying to start investing in stocks and you wanted to buy Apple, you'd quickly realize why a lot of people prefer mutual funds. Stocks can get very expensive, and some of the most expensive stocks in the world might be worth more than your monthly rent per share!
Most of us can't afford to drop $3,000 or so to get shares of Apple, Google (erm, Alphabet), and other major blue chip stocks. One of the benefits of investing in a mutual fund is that you can get slices of each of those and slowly build your way up.
In other words, it's a cheaper way to get the portfolio you want without the hassle of buying each stock individually.
Like with most other kinds of investments, it will make your money grow.
One of the most obvious benefits of investing in a mutual fund is that it's making your money work for you. If you kept that cash in a bank, the money you have would end up losing value simply because it wouldn't be able to keep up with inflation.
Saving does not help you build wealth, but investing does. That's why you need to consider getting a mutual fund—or really, any kind of portfolio of stocks, bonds, and securities you can.
Basically, it'll help you reach your financial goals.
All the benefits of investing in a mutual fund can be summed up as such: it's a safe and effective way to reach your own financial goals, regardless of what they may be.
If you haven't given investing in a mutual fund a try yet, you absolutely should. It'll be one of the easiest and most useful things you can do for your financial health.