Advantages & Disadvantages of Stock Mutual Funds

Stock mutual funds are an investment option that allows you to contribute money to a pool of funds that is managed by a financial institution. They vary in the types of stocks they invest in, like small cap funds and growth funds, and the philosophies they use, whether aggressive or conservative.

Management

An advantage of stock mutual funds is that they are managed by professional financial analysts who are paid to run the fund.

Liquidity

Most mutual funds are liquid, which means that you can withdraw your money from the account at any time.

Size Advantages

An advantage is the large size allows the fund to diversify and spread costs of transactions and professional management over a larger number of people, so each person pays less.

Size Disadvantages

In order to keep the fund liquid, the mutual fund has to keep a portion of the fund in cash, which means it is not earning as high a return as it would if it were all invested.

Fees

A disadvantage of mutual funds is that a percentage of your investment is used each year to pay for the salaries of the people who run the fund. This can add up to 2 percent of your investment per year.

References

• Investopedia: Mutual Fund Definition
• Investopedia: Mutual Fund Tutorial
• Mutual Fund Advantages and Disadvantages