| Young investors who are just starting with our a | | | | better value for every dollar invested than they |
| savings program will find that their friends, family | | | | can when they invest in mutual funds. While the |
| and advisors will almost all have different views | | | | fund companies generate an expense for their |
| about how one should start to invest their money. | | | | administrative efforts, they almost always come |
| For some, recommendations will come along the | | | | in cheaper than investing individually through a |
| lines of buying real estate that can be flipped or | | | | discount broker. With most fees at 1% or less, an |
| rented out to generate monthly income and | | | | investor with just $10,000 to invest could only |
| long-term capital appreciation. For others, it will | | | | make 10 trades in 1 year at $10 each to achieve |
| mean putting as much money away as possible | | | | the same cost savings. This tells us that funds are |
| into a low-paying CD or maybe even mutual | | | | owned by so many different unit holders that the |
| funds. | | | | collective pays a reduced fee, not the individual |
| But for as many people who recommend funds, | | | | investor. |
| an equal amount will dismiss them for a variety of | | | | 3. People who invest in Funds lost 50% of their |
| reasons. The three most common reasons people | | | | savings when the market crashed. While many |
| advise against funds are also the three ways that | | | | people certainly lost much of their portfolio's value |
| one can get a better understanding of what a | | | | thanks to the recent market crash of 2007-2009, |
| mutual fund really is, a three-way definition as it | | | | funds actually offer enough different flavors of |
| were. | | | | funds that smart, properly diversified investors |
| 1. Mutual Funds are too risky. Although every | | | | would have lost much less than nearly any other |
| fund, from money market funds, income funds all | | | | type of investor. Between high yield investments, |
| the way to equity funds and specialty funds will | | | | money market funds and specialty asset class |
| involve some element of risk, the fact remains | | | | funds, investors can find properly diversified |
| that virtually every fund actually reduces risk. | | | | investments for any and every need they may |
| How? Through diversification. What this means is | | | | have. There is an abundance of selection; one |
| that a mutual fund takes all of your money (and | | | | does not need to be limited to domestic stock |
| every one else's) and invests in enough securities | | | | market-linked investments. |
| that anyone with less than $500,000 could never | | | | As shown here in the three most common |
| even imagine achieving. And since diversification is | | | | arguments against this type of investment, |
| key to eliminating risk, saying that mutual funds | | | | mutual funds are basically highly diversified, |
| are too risky is like saying air travel is dangerous. | | | | risk-spread investments that, while they charge |
| Risk is relative and in terms of reducing that risk, | | | | expenses, are cheaper than virtually any other |
| mutual funds achieve it better than any other | | | | type of investment out there. Best of all, mutual |
| investment. | | | | funds can be virtually any asset class, not just |
| 2. Funds are expensive. Depending on the amount | | | | equities, providing investors with plenty of options. |
| of money invested, most people cannot find | | | | |