Financial services in which you will invest your money and have someone else manage it for you professionally still exists. But they require a high amount of capital sometimes to be able to gain access. This is worth it because you will have the advantage of expert fund managers in control of your money and working daily on strategies to grow your investments.
This is possible when you invest in a Mutual Fund.
A mutual fund is an investment or investing strategy that will allow you to pool or raise money together with other investors for the purpose of purchasing stocks, Bonds and other assets or securities. Mutual funds are managed by fund managers or money managers and they allocate the funds or asset across several industries or companies and focus on producing returns for their investors.
Mutual funds can be grouped into four(4) categories.
1. Stocks(Equity) Funds: These offer high risk and high reward potentials. They're funds that invest only in stocks related assets.
2. Bond(Debt) Funds: They are typically less risky than stock funds. these are funds that only invest in fixed income securities.
3. Money Market Funds: They Usually have the lowest returns as a result of the low risk of investing in them. investing in money market assets is mostly for short term basis.
4. Balanced Fund: They are also called hybrid funds. A mix of financial assets are invested in like stocks, Bonds, Commodities and others. All in the effort to create a balanced and diversified portfolio for their investors.
When you invest in a Mutual fund, Your money can increase in value in about 3 ways:
i. Income is earned from "Dividends" on Stocks and for Bonds "Interest" held in the portfolio. these are paid out in the form of Distributions. Mutual funds usually give investors options to receive checks or re-invest their earnings and get more shares.
ii. When a fund sells a security that has increased in price, This is a capital gain. And it's distributed to investors. If the Fund sells an asset that has gone down in price, it's called a Capital Loss.
iii. NAV: (Net Asset Value) This happens when the total financial worth of an asset is valued. The price per mutual fund share is called the NAV. As the value of the fund increases, So does the NAV, And investors can make gains from this when they Sell.
1. Professional Management/Expertise: A major benefit of investing in mutual funds is that each investor, regardless of amount invested will get access to professional money management services and doesn't have to do it on his own. Experts are available to make the right investing decisions.
2. Simplicity: The entire process is made simple for you, After depositing your money, You won't be bothering yourself with what to buy or sell, or which asset or company to invest in, As described above, the professionals will worry about all these.
3. Diversification: This is definitely one of the most important investing principles. investing in mutual funds most certainly means your money will be spread across multiple securities. So, The failure in one security will not result in total loss of your funds.
4. Affordability: You can invest in a mutual fund with as low as $500 to $4000 depending on the broker. Some brokers offer much lower amounts to join a mutual fund.
All investments carry a certain level of risks, And investing in mutual funds is certainly not an exception. Markets go up and down, And it may take some time before the dividends, interests and gains begin to come, This may require some patience on your side. Ultimately, Mutual funds should be considered as a long term investment vehicle.
There's so much more to know and understand about mutual funds, So for more information regarding this and the best platforms and brokers to begin investing in this Asset class, You can send us a message, We will be glad to guide you with the right Information and tools.