Why Investing In Mutual Funds Makes Sense

All investors want above average returns. However, not all investors take the time to become completely informed of the various investment options available. This invariably results in portfolios that are neither strategically positioned nor sufficiently diversified to minimize risk and maximize returns. One option that many persons have not yet fully taken advantage of is investing in mutual funds.

So what are mutual funds? Simply put, a mutual fund is an investment that pools money from many investors which is then invested in various securities. Guided by the objectives of the fund, the investment professionals who manage the fund make asset allocation decisions to ensure optimum performance. Gains made by the fund are then reinvested or passed on to shareholders/unit holders by way of distributions on a prorated basis.

So, does investing in mutual funds make sense? Yes, it does. Mutual funds provide investors with a wide range of benefits and advantages. Chief among these are:

• Immediate diversification for their investment dollar – Diversification is very important for any portfolio as it helps to minimize one’s risk exposure. Mutual funds provide investors with broad exposure to global stock markets, bond markets and money markets. In addition to being diversified by asset class, mutual funds are also diversified by geographic and economic sectors, by market capitalization, as well as by the investment style of the fund’s manager or managers.
• Increased buying power and economies of scale – Some investments have minimum entry requirements (i.e. a minimum investment amount) which all investors may not be able to satisfy. However, mutual funds allow ordinary investors to stretch their investment dollar further as the minimum investment required is relatively low. Additionally, there is an opportunity to invest in higher yielding securities globally, and fund mangers are able to execute trades on the largest and most cost-effective scale.
• Active and professional management – Mutual funds are managed by experienced investment professionals whose full-time job is to ensure that the respective funds provide maximum returns for investors. These fund managers have instantaneous access to crucial market information which allows them to make key decisions quickly, like locking in capital gains during bull runs (upward swings in the market) and taking defensive actions during market downturns.
• Greater choice, convenience and flexibility – Investors differ in terms of their appetite for risk and investment objectives. Similarly, mutual funds differ according to their risk and return levels and objectives. Therefore, an investor is very likely to find a mutual fund that will satisfy his or her particular investment needs. Some mutual funds are geared specifically towards high capital appreciation (growth funds) while others are focused on capital preservation and/or generation of income (income funds). Balanced funds combine both growth and income objectives.

It is very important to note that with mutual funds; past performance does not guarantee future performance. However, as outlined above, an investment of this nature does make sense as there are a host of benefits that investors can be assured of.

For additional information and advice on mutual funds or other investments that may be right for you, speak to your investment adviser today.

Meeting Your Goals & Achieving Financially

In trying to survive this global economic depression, you have probably learnt a lesson or two about how to make your little turn to much; between pooling resources and cutting back on spending, you have somehow managed to stay afloat.

But even with the funds you have at your disposal, are you wondering why you have not met your financial goals and are probably lagging behind on payments? You are probably one of many in the same boat waiting for something supernatural to happen. The reality is, however, that if you are not wise about how you manage and spend your money, your financial goals will never be accomplished or realized.

Two of the most basic concepts of money management include:
- Saving – the conservation of money
- Budgeting – a planned list of your expenses and income.

Saving doesn’t mean spending less, it involves knowing where you will be putting your money, how much you are saving and how to keep your savings going. This means that your spending would then have to be managed. This would then lead you to setting goals, figuring out how much money you can save, whether weekly or monthly, keeping record of your expenses and budgeting.

Bearing in mind that there is no formula to wealth creation or money management, there is information available to assist you in realizing your financial objectives. But having the discipline to save, budget or even invest is easier said than done. Faced with numerous amounts of bills and daily expenses, sitting with pen and paper, trying to put a budget together, probably doesn’t seem like a helpful tip; neither does saving money for a rainy day seem possible when your pay cheque cannot even cover your expenses.

But if you want to be money wise, you have to think budget. You can start by drafting a realistic evaluation of your net income. Do not include other monies earned such as overtime and bonuses, as this may not be consistent. You may instead put your bonuses and overtime monies in your savings. After making your budget, the only other best thing to do is to stick it out.