Mutual funds can make it easy and affordable to own a variety of investments. Here are a few key reasons why people invest in mutual funds.
1. Built-in diversification
Mutual funds can make it easy and affordable to own a variety of investments. That's because when you buy a mutual fund, you’re investing in a portfolio that holds a number of different investments – at a fraction of the cost of buying each investment individually.
Not all investments perform well at the same time. Holding a variety of investments may help offset the impact of poor performers, while taking advantage of the earning potential of the rest. This is known as diversification.
Before you decide on a mutual fund, figure out how it fits with the rest of the investments you own and your overall financial goals.
2. Professional management
You may not have the skills and knowledge to manage your own investments or want to spend the time. Mutual funds allow you to pool your money with other investors and leave the specific investment decisions to a portfolio manager. Portfolio managers decide where to invest the money in the fund, and when to buy and sell investments.
3. Easy to buy and sell
Mutual funds are widely available through banks, financial planning firms, investment firms, credit unions and trust companies. You can sell your fund units or shares at almost any time if you need to get access to your money. But you may get back less than you invested.
4. A wide range of funds to choose from
There is a wide range of mutual funds to meet almost any financial goal:
If you're a young investor with many years to invest – you may feel comfortable having investments with greater risk and greater potential return. Example: equity funds.
If you're mid-career – you may be trying to balance risk and return more moderately. Example: balanced mutual funds that buy a mix of different kinds of investments.
If you're approaching retirement – you may be less comfortable with risk and more interested in fixed income investments. Example: bond funds.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca