Planning for your retirement and financial future can be a very daunting task. First and foremost there are a great deal of variables that you have to consider. What level of living standard will you expect in your retirement? What kind of medical expenses will you face? Do you want to be able to leave something behind for your children? What unforeseeable expenses might you face in the time between now and your retirement. These are only a few of the variables for you to consider. Mutual funds are one of the many ways in which you can save for the future. Unlike many retirement plans they can be accessed before a certain age limit without tax penalties.
What are Mutual Funds?
Simply put mutual funds are nothing more than a diverse collection of stocks and bonds. There are financial institutions that focus primarily on mutual fund investments. When you wish to invest in mutual funds you will give these companies a lump sum of money which will then be used to invest in a wide range of companies and stocks. All mutual funds will have a time limit and a guaranteed level of return. There are also two classifications of mutual funds: safe and risky. Generally speaking risky mutual funds can yield more money at the risk of loosing some over time. Safe mutual funds are more predictable and will make less money.
Advantages of Mutual Funds
Professional management - By far the biggest advantage of investing in a mutual fund is having your money managed professionally. Managing your own stock portfolio can be extremely stressful and take up a great deal of your time. By working with a mutual find company you can leave managing your stock portfolio to a team of dedicated financial professionals. Another way of putting it is that they are a relatively inexpensive way to for a small investor to hire a full time professional manager to manage your funds.
Access to powerful resources - One thing a mutual fund company has that an individual investor will never have is powerful financial resources. When you invest in a mutual fund you will essentially hand your money over to financial professionals that not only understand the market but are constantly doing research in order to find the best and newest market to better utilize your hard earned money.
Diversification - Owning shares of a mutual fund is generally speaking much more safe than owning socks and bonds in an individual company. Even the smallest and most basic mutual funds will still be spread out over more than a dozen companies. Should the value of one or even 5 of these companies fall the hit would be less severe than if you had all your money in a single company that takes a hit.
Simplicity - Buying into a mutual fund is incredibly easy and requires very little attention once it has been set in motion. On top of this it is an easy way to make money over time. Even with a minimum purchase of a few hundred dollars you can make significant gains on a monthly basis. Due to its simplicity and guaranteed returns, mutual funds are an essential part of any financial planning or retirement plan.