Owning just a few individual stocks, for example, can be risky; if one performs poorly, the performance of your overall portfolio may suffer. That’s why mutual funds invest shareholder assets across many securities, to help reduce the risk to the fund if any one investment in the portfolio loses value. Of course, diversification cannot guarantee a profit or protect your portfolio from losses.
Mutual funds can be a good choice for the many investors who don’t have the time or inclination to analyze securities and companies, study the forces that influence the economy, or assess the trends in the financial markets. Large institutions hire professional portfolio managers to perform these tasks; with a mutual fund, individual investors can gain access to the same level of professional money management.
Mutual fund investors can buy or sell shares at any time at their current net asset value (NAV). (Sales charges may apply to some purchases and sales.) Since it’s easy to enter and exit the fund, and you’ll know exactly what an investment is worth on any given day, mutual funds can be an attractive option, especially when compared to less liquid investments.