- Professional management—Mutual fund portfolio mangers are experienced professionals. They make buy and sell decisions based on the fund objectives and monitor fund performance so you don’t have to spend your time researching each stock or bond.
- Diversification—Most funds give you exposure to dozens or perhaps hundreds of individual stocks or bonds. If you invest even a small amount in a fund that owns 500 stocks, you automatically invest in 500 companies.
- Flexibility—Usually a phone call is all that’s required to redeem your fund shares or move your money from one fund to another in the same fund family.
Weigh the Facts
- Returns are not guaranteed—Investing in a mutual fund does not guarantee you will make money, and you may not see your fund shares rise as sharply or quickly as individual stocks.
- Capital gains—The fund manager decides when to sell portfolio holdings and trigger capital gains, which are a payout of the profits from stocks that have gained in value. This could mean additional income to report on your taxes. Also, if you hold a mutual fund for less than one year, you must pay short-term capital gains on any earnings.
- Fees—Some mutual funds have associated fees involved with investing.