A mutual fund is a diverse holding of stocks that are managed on behalf of the investors that buy into the fund. A mutual fund allows an investor to take advantage of a diversified portfolio without having to invest a large sum of money.
What is the advantage of a diversified portfolio? It offers protection against rapid market losses of any one particular stock. If a portfolio is spread across 20 stocks, if any one of those stocks quickly loses value the effect is less than if the portfolio consisted of that one stock by itself.
When investing it is always a good idea to diversify. The problem for small investors is that they often don’t have the funds to buy a variety of stocks. Mutual funds allow small investors to benefit from diversification with a small amount of money.
Besides stocks, mutual funds can be made up of a variety of holdings […]
Original post by Michael Mobley and software by Elliott Back
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