Investment Funds
When choosing the proper type of investment to put your money in, you may be looking for a way to take advantage of professional money management and to create a diversified portfolio. One way to achieve both objectives is to put your money into an investment fund. Several investment fund possibilities are available for most investors.
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Mutual Funds
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With a mutual fund, a mutual fund company takes money from a large group of investors and then uses that money to purchase other securities. A mutual fund manager is in charge of making the investment decisions for the group of investors. The average investor can get involved with a mutual fund because shares are relatively inexpensive. Mutual funds can invest in many different items such as stocks, bonds and other mutual funds.
Exchange-Traded Funds
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As with mutual funds, with exchange-traded funds (ETFs) investors pool their money together so that a fund manager can buy investments with the money. The key difference between mutual funds and ETFs is the way that they are sold. ETFs are exchanged through a stock exchange and you can buy or sell them any time the market is open. With a mutual fund, you buy shares directly from the mutual fund company and you can only buy or sell shares at the end of the trading day.
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Hedge Funds
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Hedge funds are a type of investment vehicle used by wealthy investors. To invest in hedge funds, you have to be an accredited investor, which as of 2011 means that you have either $1 million in net worth or you make $200,000 per year. Hedge funds are not regulated by the Securities and Exchange Commission like mutual funds are, which allows them to invest in many different types of securities and use riskier strategies.
Benefits
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Investing in a fund can provide you with a number of benefits as an investor. For example, you get to leave the tough investment decisions up to someone who has more experience than you. Another benefit of this process is that you can significantly diversify your portfolio more than you could on your own. By pooling your money together with other investors, you can buy many more securities and get a balanced portfolio that can stand up to most market conditions.
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