Mutual Funds Are Very Liquid

Category: Finance.

It seems a little odd to compare stocks to mutual funds. It is important to make the distinction between the two as there are some very real advantages to using mutual funds.

Actually, mutual funds are largely composed of stocks. It is fun to invest in individual stocks because each company has its own story to tell. Investing is not a game and should not be taken lightly. However, you want to focus on making money! When you invest in mutual funds, you are able to diversify and reduce your risk of losing money. No! Do you think that those wealthy investors out there just put their money in a couple of stocks?

Either they are investing in mutual funds or are buying large numbers of stocks. It would be a little off the wall to think that you have more knowledge than a mutual fund manager! When you purchase mutual funds, you are hiring a professional manager at a relatively inexpensive price. Most managers have been around the track a number of times and have the academic credentials to back up their knowledge. Since these companies have large amounts of money to invest, they usually have personal contacts at many brokerage firms and often trade commission- free. Mutual fund companies have the advantage of capitalizing on economies of scale because they pool investors monies together. Mutual funds are easy to take care of.

Mutual funds are very liquid. The bookkeeper is much more challenged when there are hundreds of stocks to keep track of! Put in your order for money in the morning if you are short on cash, and by the time the market closes you may have a check waiting for you. It all depends upon what you have invested in. Stocks, on the other hand, are much more difficult. CDs are not at all liquid and bonds are difficult as well.

You can invest small increments of money at regular intervals and not have to pay a trading cost. If you are new to investing then mutual funds may be the way to go. If you invest in stocks, you will find that they carry high transaction fees. If you are a wealthy stock investor, then you have it made because you get preferential treatment from the brokers. This makes it quite difficult for the small investor to realize a profit. Wealthy bank account holders usually get the red carpet treatment from the banks.

Whether you only have a paltry$ 50 or a huge sum of$ 500, you all get, 000 the same manager, the same investment and the same account access. However, mutual funds do not discriminate. Generally speaking, mutual funds have a much lower risk than stocks. With stocks, there is always the worry that the company you are investing in will go belly up! This is largely to diversification which was mentioned earlier. With mutual funds, that is next to impossible.

It is not to be said that you should never invest in stocks, but if you are just getting your feet wet with investing it would be best to go with mutual funds! As you can see, there are many advantages in investing in mutual funds over stocks.