A mutual fund is a type of investment consisting in a pool of funds. The funds are gathered for many investors and the money is invested in different assets such as bonds, stocks and so on. These funds are administered by money managers. Their biggest advantage is that they allow inexperienced investors to make safe investments and they also allow them access to a very diverse investment portfolio. If this type of investment appeals to you, here’s what you need to know about it.
Advantages of mutual funds
The main advantage of these funds is that they give small investments access a very diversified investment portfolio. The first rule of solo investment is to build a very diversified investment portfolio, in other words, to spread your eggs in several baskets, in order to avoid losing all your money in case of a swift market change. However, building a diverse portfolio is a complicated process, and it is almost impossible to achieve by small investors. So, you can skip this complicated process and instead buy a mutual fund. The second big advantage of mutual funds is the fact that your money is administered by experienced investors.
Why doesn’t everybody invest in mutual funds?
Actually, a lot of people invest in mutual funds because they are indeed very efficient. However, some people stay away from these investments, simply because they require a fee. As you can imagine, nobody is going to administer your money for free, and mutual funds can have very high fees. So, people who consider to have sufficient investment knowledge, prefer to build their own portfolio and manage their own money.
Types of mutual funds
Not all mutual funds have the same strategies. Most people turn towards dividend mutual funds, particularly the funds that play monthly dividends. After all, most investors seek an additional source of income, so a fund that makes monthly payments is indeed very appealing. However, there are also funds that focus on other financial strategies, such as reducing taxes, reinvestments and so on. Finding the right fund depends on your particular needs. Do you need a monthly income, are you saving for retirement or do you have another plan with your money?
Top 3 best mutual dividend funds
Finding the safest and most profitable mutual funds is a difficult task. To give you the best advice we turned to the experts from Dividend Appreciation. Their top for the best mutual dividend funds is based on a thorough market analysis that took into account historical performance, dividend yield and much more.
- Vanguard High Dividend Yield Index Fund (VHDYX)- high yield and a low expense ratio.
- Vanguard Dividend Appreciation Index Fund (VDAIX) – great historical performance, decent yield and low expenses
- Columbia Dividend Opportunity Fund (INUTX) – high yield and highly diversified investment portfolio