Mutual funds are collections of stocks, bonds, and other financial assets that are owned by a group of investors and managed by a professional investment company. They are suitable to the novice investor because they often include hundreds of different securities, spreading the risk out among the different securities.
Seven advantages of investing in mutual funds are (1) diversification, (2) professional management, (3) minimal transaction costs, (4) liquidity, (5) flexibility, (6) low up-front costs, and (7) service.
Six disadvantages to investing in mutual funds are (1) lower than market performance, (2) high costs, (3) risks, (4) inability to plan for taxes, (5) premiums or discounts, and (6) new investor bias.
The three major types of mutual funds are (1) money market mutual funds, (2) stock mutual funds, and (3) bond mutual funds.
The three different ways in which you can purchase mutual funds are (1) directly through the mutual fund company, (2) through a financial professional, and (3) using a mutual fund supermarket.
