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What they are?
Mutual funds have become increasing popular with individual investors over the past couple decades. But what exactly is a mutual fund? A mutual fund is defined as any collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. The investment company must register with the SEC and must have at least 100 investors and at least $100,000 in assets under management. When most investors think of a mutual fund, they think of a stock fund, but there are funds that buy corporate bonds, municipal bonds, a combination of stocks and bonds, and money market securities.
What can they do for your portfolio?
Most experts agree that investors should own a variety of stocks and bonds rather than gambling on a few. The common buzzword 'diversification' refers to this concept. Professional investors with lots of time and money have no problem building a diversified portfolio of individual securities, but this can be difficult for the novice. Even if the investor has enough assets to diversify with individual securities, managing the portfolio can be a full-time job.
If you happen to be short on time and/or money, then funds may be the right investment for you. Funds pool money together from individual investors to create greater buying power and enable investors to properly diversify. They also offer investors the benefit of a professional money manager, working full time managing the portfolio and watching the market. Whether you simply want to own a portfolio of diverse stocks, allocate a portion of your assets to stocks and a portion to bonds, or gain greater exposure to a certain area of the market (such as technology stocks), mutual funds are probably a good choice.
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