What is a Mutual Fund?

What is a Mutual Fund, You Ask?

A mutual fund is a professionally managed portfolio of stocks and/or bonds. Investors buy shares in the fund and the mutual fund company pools that money to make investments on their behalf. A share represents a portion of the fund's holdings.

Mutual funds are organized around a specific investment strategy or asset class. For instance, investors might buy shares in a mutual fund focused on fixed income products, specific geographies such as Europe or Latin America or targeted investment outcomes.

Potential Benefits of  Mutual Fund

Diversification

We believe mutual funds can give a new investor or investor with a low balance an easy way to diversify their portfolio. One mutual fund might contain hundreds of stocks or bonds—reducing the risk of loss for investors, should any one of the fund's individual holdings perform poorly.

Lower Cost

Some mutual funds can offer affordability. At Blosser Harrison we use no-load mutual funds for some clients who are looking for a diversified way to potentially spread risk and earn a reasonable rate of return.

Management 

One of the benefits of mutual funds is that they offer active management. Our team of advisors may use mutual funds together with an ETF portfolio to carefully construct a portfolio that is both diversified and strategic.

Important Considerations when Investing in Mutual Funds

When it comes to selecting a mutual fund, investors have a lot of choices and considerations to make. At Blosser Harrison we do not recommend just buying a mutual fund because it might be the easiest thing to do. However, considering a few important factors can help make the decision easier.

In reviewing mutual fund options, be sure to evaluate your:

Goals - What do you want from your investment? Are you saving for your retirement, your children's college or investing money for future generations? The answers to these questions can help narrow down which funds would work best.


Time horizon - Equally as important, you should know how much time you have to devote to that goal. If you think you'll need your money in the near future, say within three years to five years, then a mutual fund may not be the best option. That's because the return in that amount of time, minus the fees, may not be enough to make the investment worth it.
Risk tolerance - Determine how comfortable you are with risk—and invest accordingly. Understanding your own risk profile can help you select funds with strategies and asset allocations that fit your goals.\

Costs - mutual funds can be more costly than other investment options like ETF's. Everyone is unique and a mutual fund may not be right for you. Some mutual funds have expenses that exceed your budget. Its important to work with your Blosser Harrison advisor when evaluating your investment options. 

Turnover - Mutual funds are unique in that investors are subjected to indirect turnover costs through taxes. When the fund buys and sells it generates a capital gain or loss to you, the shareholder. Talk to your Blosser Harrison Advisor about the potential impact mutual fund turnover can have on your portfolio. 

What are some risks associated with mutual funds?

Investors should understand that portfolio managers can't guarantee the performance of the fund, and there's the potential for loss of principal on the investment.

A  fund's diversification can have a diluting effect on positive returns; for example, if one stock in the fund doubles its share price, that's not necessarily reflected in the fund's overall return.

What are some myths surrounding mutual funds?

The biggest misunderstanding regarding mutual funds is that investors own shares of the fund's holdings. That's not the case; instead investors own shares of the fund, and not the fund's underlying investments.
Another common myth is that mutual funds are only comprised of stocks. In fact, mutual funds can invest in a variety of asset classes including, but not limited to, cash instruments, fixed income and non-traditional income vehicles.

*The benefits listed above may not be all the benefits associated with owning a mutual fund. Owning mutual funds does include the potential for loss of some or all of your principal investment.