If you are new to the world of investment, it is would be advisable to avoid investing directly into the stock market and to invest in a mutual fund instead. There are several advantages and benefits as to why starting off your investment in this investment vehicle is a better alternative. To quote from the great investment maestro, Mr. Peter Lynch, “The mutual fund is a wonderful invention for people who have neither the time nor the inclination to test their wit against the stock market….”
Besides being a better investment alternative for people who have do not have the time nor the inclination to trade in the stock market, some of the other advantages and benefits of this investment vehicle includes:-
1. You are given ready access to the superior investment skill of professionals who have the expertise and experience to invest your money in the right stocks and to reward you with better returns for your investments.
2. Ready affordability. The initial investment as well as subsequent investments in mutual funds is low when compare with buying stocks directly from the stock market. So too are the subsequent monthly investment when you opt for the dollar averaging scheme. As a result, you are able to start your investments very much earlier in life. With a longer time horizon, you will have a better chance of meeting your investment objectives.
3. You are able to achieve immediate diversification across a wide range of industries and companies as most funds would have very diversified portfolios. You may not have the sufficient funds for a diversified portfolio when investing directly in the stock market.
4. Your investment is liquid. Partial liquidation can be carried out and reimbursement of your sales is executed within a week of your liquidation. Most other forms of investment such as investment in properties are very illiquid. You may find that many a times you may find yourself in need of cash and in a dire situation when you are not able to cash out from an illiquid investment.
5. You do not have to be overly concerned with the monitoring of the fluctuation in the market as the rebalancing of the stocks and bonds within that fund in accordance to the market condition is carried out by the fund managers. Hence this undue stress to you caused by the volatility the stock market is transferred to the fund manager.
6. You can implement dollar cost averaging, a powerful and effective tool to enhance your rate of return for your investments. This proven technique has been time tested and many investors have indeed profited when utilizing this strategy.
I have come across many stock punters with a disdain for investing in a mutual fund. These people profess that they can have a better rate of return buying and selling stocks directly in the stock market. I believe it is only true when these punters happen to pick the right stock and at the right moment. But in the long run and for longer term investment, the advantages and benefits stated above are the reasons why investing in a mutual fund would definitely be the better alternative.