Book of Wise Investors

Most of average people like us participate in stock markets through mutual funds rather direct stock ownerships. Although in general, no one has to be afraid of losing every single cent in his or her mutual funds investments, there are still some issues to bear in mind when investing in mutual funds.

1. Historical returns does not equal to future returns

The issue with marketing materials that one see from every mutual company is that almost every chart that they produced show higher than market returns and your problem become not of choosing which got the highest returns but of identifying which one is telling the truth.

2. Certain mutual fund companies have long term returns higher than market returns

The definition of returns include time period, it is very easy to cork up high percentage of returns simply by choosing the time period that is most favorable to the company involved.

3. Best place for an average person to participate in the returns of stock market

There are many pros and cons with regard to investing in mutual fund compare with directly purchasing individual stocks. Eventually, each mutual fund, I supposed, at least holds a very diversified portfolio of stocks such that the probability of losing every single cent is next to zero. Most probably you won’t be rich like Bill Gates but at least one does not become poor. There are both limits to upside gains and downside risk.

Majority of mutual funds value will be in harmony with stock market value such that they will increase and decrease in value at the same time and same percent.

4. High liquidity as stocks itself

Though one can cash out quite fast and easily as stocks, there are greater commissions than stocks. As a result, still need to prepare spare cash for 6 months of living expenses first.

5. Don’t have to spend life watching stock tickers

One of the greatest advantages in mutual fund is that more time and effort can be expended in own career and businesses. If got a business that earns high economic profits, it make much more sense to focus on it rather than spend your life watching stock tickers thinking that you can beat and time the market.

Related posts:

1. Deciding between actively managed mutual funds and passive index funds
2. Essential knowledge in choosing stocks mutual funds to invest
3. Neglected risk when invest in stocks and bonds through mutual funds and ETFs
4. Risks inherent in mutual funds