With all the talk of the need for diversification in today’s marketplace, a lot of people are turning to mutual funds. A mutual fund is a collection of companies from different sectors, industries, market caps, and often countries that make up one share.
If a person buys one share of a mutual fund, they would potentially own a piece of approximately 100 companies. To some people this is considered diversification as they own a piece of many companies instead of just one or a few. And this may well be the case, depending on what that particular person is looking to receive from their investments.
For the record, I believe diversification is being in several totally different investments. For example, owning two hotels, a book publishing company, a clothing line, several Mc. Donald’s franchises and shares of Coca Cola and Exxon Mobil would symbolize diversification to me. It doesn’t have to be in these specifics businesses or stocks, but hopefully you get the picture.
In regards to having a diversified portfolio, my opinion on mutual funds is that they are for amateur investors who don’t know how to pick their own investments, or for one reason or another don’t have time to. From the ages of 18 to 20, before I had a good understanding of investing, I depended upon mutual funds myself for diversification or at least for what my perception of diversification was at the time.
Although mutual funds can give a person professional management of investments, the downside to that is mutual fund companies generally charge large fees that eat a large portion of the profits on a continual basis. I’m not at all a fan of this, especially when the mutual fund company doesn’t assume any of the risk.
On the upside, there are mutual funds that are tied to indexes such as the S&P 500 (measure of the stock performance of 500 of the largest companies) that have much smaller fees than traditional mutual funds as less work and research is performed since they are just tied to the index.
Depending on the investment skill level of an individual, mutual funds may need to play a vital role in a person’s investment portfolio in order to give them some level of diversification that they would normally not otherwise have if making all investment decisions on their own.
After I learned more about investing, particularly in real estate, I took out all of my money that I had in mutual funds and bought a duplex, and then another home six months later. Not to say that mutual funds are bad, because they can be very valuable and many of mutual funds have seen great annual returns of over 50% in given years, it’s just that I realized that there was more active ways to gain wealth and increase my net-worth, other than just relying on mutual funds.
In conclusion, I do recommend mutual funds to anyone who wants what society considers diversity or for anyone who doesn’t have time to become a seasoned investor by way of studying and learning by trial & error.
For more information on investing, read my new book “The Takeover: Everything You Need To Know About Business” by La’Foy Thomas III, available at BarnesandNoble.com by clicking on the link below. http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?z=y&EAN=9781425962210&itm=1
If a person buys one share of a mutual fund, they would potentially own a piece of approximately 100 companies. To some people this is considered diversification as they own a piece of many companies instead of just one or a few. And this may well be the case, depending on what that particular person is looking to receive from their investments.
For the record, I believe diversification is being in several totally different investments. For example, owning two hotels, a book publishing company, a clothing line, several Mc. Donald’s franchises and shares of Coca Cola and Exxon Mobil would symbolize diversification to me. It doesn’t have to be in these specifics businesses or stocks, but hopefully you get the picture.
In regards to having a diversified portfolio, my opinion on mutual funds is that they are for amateur investors who don’t know how to pick their own investments, or for one reason or another don’t have time to. From the ages of 18 to 20, before I had a good understanding of investing, I depended upon mutual funds myself for diversification or at least for what my perception of diversification was at the time.
Although mutual funds can give a person professional management of investments, the downside to that is mutual fund companies generally charge large fees that eat a large portion of the profits on a continual basis. I’m not at all a fan of this, especially when the mutual fund company doesn’t assume any of the risk.
On the upside, there are mutual funds that are tied to indexes such as the S&P 500 (measure of the stock performance of 500 of the largest companies) that have much smaller fees than traditional mutual funds as less work and research is performed since they are just tied to the index.
Depending on the investment skill level of an individual, mutual funds may need to play a vital role in a person’s investment portfolio in order to give them some level of diversification that they would normally not otherwise have if making all investment decisions on their own.
After I learned more about investing, particularly in real estate, I took out all of my money that I had in mutual funds and bought a duplex, and then another home six months later. Not to say that mutual funds are bad, because they can be very valuable and many of mutual funds have seen great annual returns of over 50% in given years, it’s just that I realized that there was more active ways to gain wealth and increase my net-worth, other than just relying on mutual funds.
In conclusion, I do recommend mutual funds to anyone who wants what society considers diversity or for anyone who doesn’t have time to become a seasoned investor by way of studying and learning by trial & error.
For more information on investing, read my new book “The Takeover: Everything You Need To Know About Business” by La’Foy Thomas III, available at BarnesandNoble.com by clicking on the link below. http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?z=y&EAN=9781425962210&itm=1
