What is a Mutual Fund?

What is a Mutual Fund, You Ask?

A mutual fund is a professionally managed portfolio of stocks and/or bonds. Investors buy shares in the fund and the mutual fund company pools that money to make investments on their behalf. A share represents a portion of the fund's holdings.

Mutual funds are organized around a specific investment strategy or asset class. For instance, investors might buy shares in a mutual fund focused on fixed income products, specific geographies such as Europe or Latin America or targeted investment outcomes.

Potential Benefits of  Mutual Fund

Diversification

We believe mutual funds can potentially give investors a way to diversify their portfolio. One mutual fund might contain hundreds or thousands of stocks or bonds.

Lower Cost

Some mutual funds can offer affordability. At Kerr Wealth Management we use no-load mutual funds.

Management 

One of the benefits of mutual funds is that they offer another set of eyes. Using a professional third party fund company can help in many ways. We may use mutual funds together with an ETF portfolio to carefully construct a portfolio that is in line with your risk tolerance and goals. 

Important Considerations when Investing in Mutual Funds

When it comes to selecting a mutual fund, investors have a lot of choices and considerations to make. 

In reviewing mutual fund options, be sure to evaluate your:

Goals - What do you want from your investment? Are you saving for your retirement, your children's college or investing money for future generations? The answers to these questions can help narrow down which funds would work best.

Time horizon - Equally as important, you should know how much time you have to devote to that goal. 

Risk tolerance - Determine how comfortable you are with risk—and invest accordingly. 

Costs - mutual funds can be more costly than other investment options like ETF's. Everyone is unique and a mutual fund may not be right for you.  

Turnover - Mutual funds are unique in that investors are subjected to indirect turnover costs and taxes at the fund level. When the fund buys and sells it generates a capital gain or loss to you, the shareholder. 

What are some myths surrounding mutual funds?

The biggest misunderstanding regarding mutual funds is that investors own shares of the fund's holdings. That's not the case; instead investors own shares of the fund, and not the fund's underlying investments.
Another common myth is that mutual funds are only comprised of stocks. In fact, mutual funds can invest in a variety of asset classes including, but not limited to, cash instruments, fixed income and non-traditional income vehicles.

Lastly, mutual funds are safer. Wrong. Mutual funds may have alot of holdings in the fund but it certainly does not gaurantee protection.

Information provided by BlackRock. 

*The benefits and risks listed above may not be all the benefits and risks associated with owning a mutual fund. Owning mutual funds does include the potential for loss of some or all of your principal investment. This page is not an endorsement for or against mutual funds or a solicitation for mutual funds. Investors should evaluate their risk and goals before deciding if a mutual fund is appropriate for your risk and goals.