Mutual Funds – A Bird’s Eye View & How They Can Help You Diversify Your Portfolio
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What is a Mutual Fund?


Mutual funds are a financial vehicle that allows you to “pool” your money with other investors, allowing you to “mutually” buy stocks, bonds, and other types of investments…Thus, “Mutual” Funds.

Mutual Funds are managed by professional money managers; who decide which securities to buy and when to sell them. Since Mutual Funds provide a wide variety of investment types, they help clients diversify their investments by their very nature.

Why should I invest in Mutual Funds?

Professional Management
Mutual Fund buyers get the benefit of having a professional manager who researches and reviews the fund’s portfolio

Diversification
By their very nature, mutual funds are typically diverse financial investment products. They typically include a variety of asset classes, including international and domestic stocks, bonds, and commodities.

Low Transaction Costs
Mutual Funds buy and sell in bulk, so transaction costs are typically lower than what would be paid by an individual investor

Actively Managed vs. Index Funds


Actively Managed Funds
Portfolio Managers actively manage these types of mutual funds, with careful selection of securities with the express goal of outperforming market benchmarks. Actively Managed Funds are typically more expensive than Index Funds (see below).

Index Funds
Index Funds are designed to meet, rather than beat, a specific index (such as the Nasdaq.) They are typically lower cost funds than Actively Managed Funds

Types of Mutual Funds


Common Mutual Funds
These are the more traditional type of mutual funds, including investments in equities, fixed income, and/or cash, using traditional strategies like fundamental relative value and indexing. Most Mutual Funds are Common Mutual Funds.

Specialty Mutual Funds
These are mutual funds that target non-traditional investments and strategies, including investments based on environmental, social and governance guidelines (ESG Funds).

The Four Main Categories of Mutual Funds:
Stock Funds - Investments in this category are principally in either equity or stocks

Bond Funds - Fixed-income mutual funds pay a set rate of return, like government bonds, and corporate bonds.

Index Funds - Investments in this category are in stocks that are included in a major market index (such as the DJIA).

Balanced Funds - These “Asset Allocation Funds” try to reduce the risk of exposure by investing in various asset classes, like stocks, bonds and money market funds.

What are the typical fees associated with Mutual Funds?


As previously mentioned, Actively Managed Funds are typically more expensive than Index Funds. Fees are an important part of any investment decision.

Mutual Funds fees typically fall into three categories:
Operating Expense Ratio - Annually factored fund operating expenses
Transaction Fee - Brokerage Firms trading fee when you buy or sell
Load - a one-time commission some fund companies charge when shares are bought or sold in certain load-based mutual funds.

SUMMARY:


Mutual Funds can be an important component of your overall investment plan and strategy.

For a Free Consultation or expert financial guidance, please contact Sandra Keir of Keir Planning via our Contact Page. Sandra Keir, CFP®, CRPC (Certified Financial Planner & Certified Retirement Planning Counselor), has over 25 years of experience in the Financial Services industry, serving Sarasota, St. Petersburg, and Tampa Florida. Securities offered through Chelsea Financial Services (NYC), member FINRA | SIPC | MSRB. Advisory Services offered through Chelsea Advisory Services, Inc.

For more information on the various types of mutual funds, and for more detail on the categories of mutual funds, visit:

https://www.investopedia.com/terms/m/mutualfund.asp

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-1


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