Why I Invest in Mutual Funds

About 65% of my portfolio is invested in mutual funds.  The rest is invested directly in stocks through my E-Trade brokerage account.  Mutual funds were my first and only investment for about 20 years, before I began to choose my own individual stocks.  There are a number of key reasons I invest in mutual funds and I strongly recommend them to other investors.

This is the first in a series of five posts on mutual funds. 

Why I Invest in Mutual Funds
How to Pick a Mutual Fund – Return
How to Pick a Mutual Fund – Type
How to Pick a Mutual Fund – Fees
How to Pick a Mutual Fund – Risk

Disclaimer: I’m not an investment professional nor am I licensed to sell securities.  This information is provided for entertainment purposes.  Before investing, you should seek the advice of an investment professional.  I’m not affiliated with nor do I receive compensation from mutual fund companies. 


I am not affliated with Fidelity Investments or Rosenfeld Media.

Image by Rosenfeld Media

The beauty of a mutual fund is that it’s almost as convenient as a bank account to open and manage.  Although most people are familiar with choosing mutual funds through their 401K plan, opening one on your own is a snap.  And, you don’t need a lot of money to start a mutual fund.  Many fund companies will waive the minimum balance, as long as you agree to an automatic monthly investment.

When I first started investing in mutual funds, they didn’t have fully-interactive websites.  You had to actually mail in your application with a check and call up customer service to purchase or redeem shares.  Now, you can fill out your application online and be up and going within minutes.  Plus, you can purchase, redeem or check the value of your shares right online.  There are also plenty of incredible financial calculators and research tools.

Disclosure: I’m not affiliated with Fidelity Investments nor do I own any of their products.  I’m not affiliated with Rosenfeld Media.  The image above represents the many useful tools provided by mutual fund companies.


One huge benefit of mutual funds is that they are very secure.  You can lose some value if the market goes down, but no one will have Madoff with your money.  🙂  Funds are audited annually, by large CPA firms, to ensure your money is right where it’s supposed to be.  This is not always the case with hedge funds and independent financial advisers.  Even banks fail regularly, but mutual funds rarely become insolvent.


Another great benefit of mutual funds is the amount of disclosure that is required by law.   You can look up the funds largest investment holdings, the fee structure and the historical performance for various periods.  You can learn about the fund manager and the investment objective.  You can check out the sector distribution and the turnover rate.

My Dad taught me how to read a prospectus when I was in my twenties.  He showed me how they put the pretty charts in the front and hide the fees and expenses in the back.  And, he showed me how to interpret the performance of the fund.  They now have summary prospectuses that are much easier to read.  They are about four pages long and have all the critical information.


The primary reason to own an investment is to make money.  Historically, the stock market has outperformed most other types of investments.  Although the market has been very shaky lately, money markets, CDs and government bonds are yielding less than the true rate of inflation.  That means you are guaranteed to lose money in those investments.  An equity mutual fund is a better vehicle for long-term growth.

My funds have performed much better than my individual stock picks, both in up and down markets.  But, I am getting better at picking stocks and I hope to someday rival the pros.  Like every small investor, I dream of finding the next Microsoft or Wal-Mart and hitting it big.  In the mean time, most of my financial future is securely parked in mutual funds.


The variety of mutual funds types available today is mind boggling:

Investment Stock, bond, real estate, money market
Capitalization Large cap, mid cap, small cap
Objective Growth, value, income, index
Region Domestic, international, global, emerging
Sectors Electronics, finance, medical, media, etc.
Allocation Target date (Retirement) funds

And, there are combinations, such as Small Cap Emerging Growth.

The Bottom Line

The bottom line is that few investment opportunities have the combination of benefits available through mutual funds.  For a small management fee, you can build a solid performing, well-diversified portfolio.

“There’s accountability in the mutual fund industry. And they’ve been tremendous engines of wealth for people and they’re going to continue to be so.”

Jim Cramer – Host of Mad Money

Recommended Reading

Check out Why Invest in Mutual Funds over at

This post was featured on the Carnival of Personal Finance over at Budgeting in the Fun Stuff. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s the premiere carnival for Finance Blogs.

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