Although there is no one-size-fits-all model for successful portfolio management, mutual funds have been shown to play a stabilizing role in the investment process. Regardless of an investor’s underlying goals and objectives, there is probably a mutual fund out there that matches their risk-return profile and asset allocation needs. Consider that, in the United States alone, there are more than 9,300 mutual funds available as of 2017. Very few asset classes offer the same level of flexibility.
This huge selection of mutual funds also guarantees that an investor will meet his or her asset allocation requirements. Mutual funds have a built-in diversification mechanism that allows investors to access virtually any type of financial asset, sector or region. This includes access to dividend income. Diversification is a core tenant of long-term value investing.
The majority of mutual funds geared toward meeting long-term investment goals are liquid investments, which means they can be bought and sold with relative ease. This translates into easy access to your money, simple cost-averaging over time and the added convenience of changing funds without trading fees provided they are from the same family.
Be sure to read this article to know how factor investing can play a key role in portfolio management.
Mutual funds are also ideal for tax management because they are eligible for registered accounts, such as 401(k) plans. This makes them ideal for long-term retirement saving.
Since mutual funds are managed professionally, investors never have to analyze their investments actively. While this doesn’t preclude monitoring a portfolio’s performance, investors can save countless hours of research by simply selecting the best-performing mutual funds and then relying on the issuer to adjust the holdings when necessary.
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