Investment Funds – Investing
When you think of investment securities that you would consider putting your money in, first consider the advantages that you will derive from them. Mutual funds, just like any other type of investment, have advantages that make them popular among investors. However, it is not all bread and butter as far as the advantages are concerned because, what may be an advantage for one investor may be a disadvantage for another. It is up to you as an investor to weigh a given advantage and see whether it works for or against your investment goals and objectives. One of the most popular reason why one should invest in mutual funds is the fact that they provide you with room for diversification.
Diversification is one aspects of investing that plays a crucial role in helping you spread the risk that is associated with any given investment. It simply implies investing in many different types of stocks, shares and bonds, such that if one carries a high risk factor, it is covered by another whose risk factor is not as high.
For example, it seems to be generally agreed that small cap companies are those that have a value between $250 million and $2.5 billion, mid cap companies fall between $2.5 billion and $10 billion and large cap falls between $10 billion to over $200 billion. However, these figures are not constant because they are dependent on the market conditions.
As you purchase mutual funds, you will be provided with yet more benefits of diversification. For example, you might think you are diversifying your investment by investing in two different types of stocks like oil and energy, but when energy prices are affected positively, the two types will be affected because, they fall under the same category. The other advantage that you will never miss to enjoy is economies of scale. In other words, if you invest in a variety, you will enjoy the benefit of reduced costs during purchase or even as you redeem.
Next main cost of the product is for the insurance company or the bank. They would suck a small percentage out of the capital you invested into the fund every year, or even every month. The percentage may be small but as the apparent capital grow larger, it can become very frightening. Try computing the absolute amount that they took from you, it may freak you out.
Lastly, the fund manager takes a sip of what they earned for you, of course. This is the only cost I think reasonable. After all, they are the ones who executed the buy sell commands for you. But do not be naive and think that they really work hard to earn as much for you as possible. What they really care is to stick to the policy and make sure the growth rate does not fall below a certain level so that they keep their high pay job. So now you know. You can go ahead and decide whether to answer the call from your ‘personal financial planner’ next time. God bless.
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