Investing in mutual funds that offer time and cost efficient benefit might be a high-quality way to invest in stocks worldwide in long term. If you are busy and suffering from lack of investment expertise, you will love to know more about stock mutual funds.
Mutual funds take money invested by people like you and me and pool that money in a single investment portfolio in securities, such as stocks and bonds, that is professionally managed. Stock mutual funds, as the name suggests, invest primarily or exclusively in stocks (some “stock” funds sometimes invest a bit in other stuff, such as bonds).
Some advantages you should know before investing:
(1) Diversification:
Buying individual stocks on your own is relatively costly unless you buy reasonable chunks (1000 shares or so) of each stock. But in order to buy 1000 shares each in, say, a dozen companies’ stocks to ensure diversification, you need about RM60,000 if the stocks that you buy average RM50 per share.
(2) Superb Easy:
Investing in stocks through mutual funds can be as simple as dialing a toll-free phone number, logging on to a fund company’s Web site, or seeking professional advice from consultant then completing some application forms, and zapping them some money.
(3) Professional Management:
Even if you have big bucks to invest, mutual funds offer something that you can’t deliver: professional, full-time management. Mutual fund managers peruse a company’s financial statements and otherwise track and analyze a company’s business strategy and market position. The best managers put in long hours and possess lots of expertise and experience in the field. (If you’ve been misled into believing that with minimal effort you can rack up market-beating returns by selecting your own stocks, then you will regret it one day.)
(4) Huge time-saver:
It’s Friday night — would you rather sit in front of your computer or go to the local library and do some research on semiconductor, developers and toilet paper manufacturers, or enjoy dinner or a movie with family and friends? (I guess that the answer to that question depends on who your family and friends are!)
(5) Low costs:
If and only when you pick them right. To convince you that mutual funds are not a good way for you to invest, those with a vested interest, such as stock-picking newsletter pundits, may point out the high fees that some funds charge. An element of truth rings here: Some funds are expensive, charging you certain percent per year in operating expenses. But still many are charged reasonably.
But just as you would not want to invest in a fund that a novice with no track record manages, why would you want to invest in a high-cost fund? Backed by the “You get what you pay for” notion often highlighted by those trying to sell you something at a relatively high price.
However some of the best managers are the cheapest to hire. Do you know that? Through a no-load (commission-free) mutual fund, you can hire a professional, full-time money manager to invest your RM10,000 for less than RM800 per year. And if you have far less than this to invest, they’ll still invest your money at a low cost: free to RM80 per year if you invest RM1,000.
As with all investments, mutual funds have drawbacks that you should take note:
(1) Control
The issue of control is a problem for some investors. If you’re a “control-aholic”, turning over your investment dollars to a seemingly black-box process – where others decide when and where to invest your money – may unnerve you. However, you need to be more concerned about the potential blunders that you may make investing in individual stocks of your own choosing or, even worse, those stocks pitched to you by a broker.
(2) Taxes
Taxes are another concern when you invest in mutual funds outside retirement accounts. Because the fund manager, and not you, decides when to sell specific stock holdings, some funds may produce relatively high levels of taxable distributions. Fear not — simply select tax-friendly funds if taxes concern you at certain stages in your life.
