Advantages and disadvantages of mutual funds

 Advantages and disadvantages of mutual funds

For investors looking for a quick and inexpensive way to diversify their portfolios, mutual funds may be key. These investment funds refer to a type of collective investment scheme that allows investing directly in stocks and other securities by purchasing “units” in a fund that consists of a whole range of different assets. Like any other type of investment, mutual funds are also associated with a set of advantages and disadvantages. This article will provide you with the most important of them.

Advantages and disadvantages of mutual funds

Funds provide the opportunity to purchase a wide range of investments, whether in various companies or even other types of assets, such as bonds or property. Investing in funds has two main advantages:

1- Funds are managed by specialists in the field, meaning that all decisions taken are based on comprehensive research.

2- Investing in funds is less risky than investing in one stock, so you should not put all your eggs in one basket.

All you need to do is decide what type of fund you want to invest in based on your goals, the amount of risk you are willing to take, and the fees you can afford, and then let the professionals do the rest.

The main downside of investment funds is the additional cost that you have to bear, which usually reaches 0.75% annually, in addition to the risks of volatility that characterize the investment field.

What do the funds invest in?

International stock market funds

Some investors feel more comfortable investing in countries they know a lot about. If you are from the United Kingdom for example, you may prefer to invest in shares listed on the UK stock market.
Global stock market funds

These funds spread your money over a group of stocks from different countries. You might invest 45% of your money in the US for example, 10% in Japan, 6% in the UK, and so on. One of the advantages of this investment option is that you do not depend on the wealth of one country, that is, you do not put all your eggs in one basket.

balanced funds

Balanced funds are usually a mixture of stocks and bonds. These funds balance the investment portfolio by holding the two types of investments that are more volatile.

Multi-asset funds

Some investors think that it is better to hold a wide range of assets, relying on a professional investor to decide the entry and exit time for each asset separately. These assets can include stocks, corporate and government bonds, property, and even commodities, such as gold.

property funds

Here it is about investing in commercial real estate such as shops, offices, factories, warehouses, etc. Some funds fully own real estate, while others invest in companies that only invest in real estate.

Advantages of investment funds

  • diversification
  • It is easy to invest in
  • High liquidity
  • Multiple investment options
  • Low purchase cost
Disadvantages of investment funds

  • Fees can be expensive
  • High performance or rate of return is not guaranteed
  • Not insured by the FDIC
  • You do not have the personal freedom to switch your investment because the fund manager controls the investment instrument
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