Mutual Fund As Your Alternative Investment Portfolio
People always say that investment is a money game with the playing rule of “high risk with high return and low risk with low risk”. You may want to invest in an investment portfolio that is able to give a good return and the stock market is always the best choice in terms of high return. But you are aware that investment in the stock market will cause you to lose all your money as well because the game rule said “high risk is the high return and low risk comes with low return”. Hence, the stock game might not suit your risk profile; you may want to look for an alternative that can give a comparatively good reward but with much lower risk than stock. If you are categorized in this group, then mutual fund can be your game.
Mutual Fund Is A Risk Sharing Game
A mutual fund is simply a financial medium that allow a group of investors to pool their money together with a predetermined investment objective. The pooled money will manage by a fund manager. The fund manager is a person who is widely expert in stock and bond markets. He/she is responsible to invest the pooled money into specific securities, usually stocks and bonds. When you are buying shares of a mutual fund, you will become one of the fund’s shareholders. All the gains and losses will be shared among the fund’s shareholders. Hence, mutual fund is a risk-sharing game.
Compare to stocks and bonds, mutual funds are one of the cost-effective and easy playing games. You do not need to really expert in the stock and bond market because the fund manager will take care of it; and you do not need to crack your head to figure out which stocks or bonds to buy, because you have the expert, the fund manager to make the decision for you.
You do not need a lot of money to get your start the game; you decide the amount of money you plan to invest into the mutual fund. Some mutual funds may even let you start with just $100. The best part is the cost-effectiveness. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs. The biggest advantage of mutual funds as compared to stocks or bonds is “diversification”.
Diversification Will Lower The Risk
Investment experts always advise that if you want to invest your money, “Don’t put all your eggs into the same basket; else if the basket fall, all you eggs will break”, some will happen on your money, if you invest in one stock, if the stock perform negative, you lose all your money. Diversify your investment to spread out your money into many different types of investments. When one investment is down, another might perform in an uptrend.
Hence, with the diversification of your investment, you will reduce your risk tremendously.
You can diversify your investment by purchasing different kinds of stocks and bonds instead of one. But it may take weeks to buy all these investments. On the contrary, you can get these done by purchasing a few mutual funds and mutual funds automatically diversify your investment across many stocks and bonds.
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