3 reasons we think mutual funds are sweet
There’s one type of investment we always love to talk about: mutual funds. Here’s why we love them, and why they may be worth your consideration.
Diversification can reduce risk
Mutual funds offer diversification—they allow you to invest in multiple asset classes and many different securities to reduce your overall risk. Think of it as an investment smoothie: mutual funds have a blend of various securities as their ingredients, and when combined, the result can be pretty appealing. While some individual securities may look impressive and receive a lot of attention, an exemplary past performance is no guarantee that a security will carry that same momentum in the future. A mutual fund helps mitigate that risk, so that even if your favorite stock fumbles in the market, the hundreds (maybe thousands!) of other assets and securities in your mutual fund can help you keep moving forward.
Control your costs
You can’t control what happens in the market. So focus on what you can control: your costs. When trading individual securities, look at their commissions or fees. You’ll likely pay not only when you begin investing in them, but also each subsequent time you buy or sell your shares. Most of the mutual funds Vanguard offers are no-load funds, meaning they don’t assess fees when you purchase or sell the fund.
There’s also a fund’s expense ratio to consider. Each fund has one, and it’s calculated each year. The expense ratio represents the cost of a mutual fund’s management and administration, as well as its marketing and distribution fees. Since it’s removed from the fund’s earnings before investors are given their return, investors don’t directly pay a fee for the fund’s maintenance. The lower a fund’s expense ratio, the more money you get to keep. And if your Vanguard fund offers Admiral™ Shares, you could be looking at even lower expense ratios.
Mutual funds consist of a multitude of various holdings, which may sound like a lot for you to keep track of. The good news? You don’t have to. A team of experts manages each of Vanguard’s mutual funds, whether it’s an index fund designed to match the pace of the market or an active fund designed to outperform it. In short, a mutual fund is a professionally managed portfolio.
These experts are dedicated to reviewing the performance of our mutual funds to make sure each fund stays with its investment strategy. You can learn more about each fund’s investment strategy, as well as the teams that manage the funds, on each fund’s page under Portfolio & Management. You can also learn more about how each mutual fund is allocated, as well as the risks associated with these investments, to determine which fund (or funds) may be most suitable for you.
All investing is subject to risk, including the possible loss of the money you invest.
Diversification does not ensure a profit or protect against a loss.