Mutual funds offer many advantages and should be included in your investment portfolio. Mutual funds are good investment instruments, and should be a part of 401k retirement accounts, but after such a tough year in 2008, many investors are not very sure about stock market and mutual fund investments. While it is always good to take a stock of things, suffices it to say that investments in mutual funds should be looked at as a long term strategy. For instance the battered stock markets have been rebounding in 2008. If you had bought into the market last year (2008) at its low point, you would have made some decent profits in mid 2009.
Mutual fund investment helps a new investor with limited knowledge and understanding of how to research stocks with good fundamentals. When you invest in mutual funds, you sit back and let the mutual fund managers do all the research work and investment on your behalf. So this is the best option for investors with limited knowledge, time and resources.
Investments in mutual funds for your 401k have tax advantages. It is important to construct a more balanced portfolio of stocks, one must note that most mutual funds take long positions. Such positions only make money when stocks gain in value, and loose when their value drops. There should be some place for short-biased stocks in your 401k stock portfolio, although it requires the expertise of knowledgeable portfolio managers.
Mutual funds help provided diversification for your investment. One must strive to maintain a more balanced mutual fund stock portfolio, by including stocks from different sectors, as well as those with different investment trading strategies. Investment in a balanced portfolio of mutual funds would help you in constructing a diversified portfolio of investments with limited volatility.
Reduction of Transaction Costs
Investments in mutual funds help investors reduce transaction cost or fees which are usually associated with stock market investing. For instance, when you buy one mutual fund you are automatically buying into a diversified portfolio, and the transaction cost is very minimal compared to the cost of buying individual stocks.
Conclusion
This article has outlined many of the advantages which come with mutual fund investing. Some mutual funds are better than others, A typical 401k stock mutual fund portfolio should consider including solid mutual funds such as Vanguard Prime cap fund, Fidelity Blue Chip Growth fund, American Funds American Mutual A, Vanguard Small Cap Growth Index, as well as Oakmark International. While all mutual funds lost money in 2008, these mutual funds’ losses were more moderate than many other funds, but consider the fact that 2009 may see some recovery from the battered stock markets. Many analysts believe that the markets have bottomed out when the Dow got to the range of 7,500. It has rebounded back and trading near the 8,900 range at the time of this writing. Buying into mutual funds with reputable managers is complementary to your overall investment philosophy.