Tuesday, 20 October 2020

When to Buy Mutual Funds? Know Advantage and Disadvantage

When to Buy Mutual Funds?

Mutual funds are a great investment for a lot of investors but when is the right time for you to buy mutual funds and what are the best mutual funds to buy? Well, the answer is there is no answer, and it depends on your personal financial situation, your tax bracket, and a number of other situations. Before you buy mutual funds let’s walk through some of these factors to see if mutual funds are right for you.
When to Buy Mutual Funds? Know Advantage and Disadvantage
Before you buy mutual funds you need to consult your financial advisor to determine if mutual funds are right for you. Anything in this article should be taken as informational only and not construed as financial advice. Anyway back to the analysis on what mutual funds to buy now…

What are your investment goals?

Before buying into any funds consider your investment goals. If you are looking for a small return on your investment but are primarily concerned with not losing your investment then a fixed income fund is probably more appropriate, if you are looking for a little bit better return and are willing to take on some more risk perhaps a dividend mutual fund is something to consider, and if you are a risk-taker willing to try to hit financial home runs, then try looking at some high-risk equity funds.

Did you buy mutual funds at your risk level? Something to keep in mind before buying mutual funds is the level of risk associated with the funds. When funds invest solely in stocks they take on more risk than their fixed-income counterparts. Some funds have an extreme level of risk associated with them as well. For example, there are a lot of extremely risky funds known as emerging markets funds and while these types of funds have extremely high upside they have extra risk associated with them with factors like political unrest, currency exchange, and simply the risk of companies going under.

If you are a risk-averse investor or an investor close to retirement you should be looking for either fixed income funds (funds that primarily invest in bonds and guaranteed income securities) or funds that have a good portion invested in these lower-risk securities. For younger investors funds high amounts of upside are the best mutual funds to buy, provided they don’t mind the risk.

Where to buy mutual funds?

Sometimes where you invest is as important as what you invest in. What do I mean? Well some companies charge more fees than others, some companies have better mutual fund options than others, and some companies just have better financial advisors who can show you how to buy mutual funds. Always do your homework before giving anyone your hard-earned money, make sure you understand all the fees and terms. You may even be able to buy mutual funds online which may save you some money on fees and commissions, but again do your homework before investing a single dollar.

Mutual Fund Advantages


There are a number of advantages to investing in mutual funds. First of all, they are affordable for the common investor. When you invest in stocks you will need enough money to buy at least one share and for some companies that can be hundreds or thousands of dollars per share. You can invest virtually any amount of money in mutual funds (per the issuing company’s rules of course).


As mentioned, mutual funds provide a simple method of diversification or investing money in different types of securities and different types of companies so all of your investment eggs aren’t in one basket. Diversifying your portfolio can be tricky on a fixed budget so mutual funds give you an inexpensive way to protect your investment.

Experienced management

Mutual funds are managed by a fund manager that decides what investments should be bought and sold on behalf of the fund. Most investors that are reading this article have little to no experience investing in the market and may not be ready to make an investment decision on their own. Even though mutual funds can and do lose money, having an experienced fund manager manage your money will greatly eliminate some market risk.

Mutual Fund Disadvantages

Fees and expenses.

Mutual funds charge a wide variety of fees and expenses so before you invest in any of them you need to be 100% sure you understand them all and how they impact your rate of return. Some funds may charge an annual maintenance fee while others may charge a fee whenever the fund manager makes a trade. Before investing based on the historical rate of return on the fund, be sure you understand how the fees and expenses will eat away at that return.

Lack of Investment Control.

As mentioned in the mutual fund advantages section, having someone else decide what securities you should buy and sell takes control out of your hands. As you become a more experienced investor you may decide that you want to take control of your investments and manage them on your own.
The bottom line when it comes to mutual fund investing is that they are a good way to start investing, especially if you have a limited amount of capital to invest. No matter how much you have to invest and what type of investments you are looking for there is probably a mutual fund that is right for you. As always be sure to check with your financial advisor to be certain mutual fund investing is right for you and make sure you read and understand all the fees, expenses, terms and conditions involved before you buy mutual funds.

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