A misconception among some investors is that using mutual funds as investment vehicles is expensive and designed for small investors. As the mutual fund industry has progressed, the advantages of using mutual funds have also increased. In some instances the use of mutual funds is actually a more economical way of investing money.
One of the biggest advantages of using mutual funds is the ability to use more asset classes than possible using individual securities. For example, some asset classes that might be used in a balanced portfolio include Government Bonds, Mortgage-Backed Securities, International Bonds, Convertible Bonds, High Yield Bonds, Large Cap Growth Stocks, Large Cap Value Stocks, Small Cap Growth Stocks, Small Cap Value Stocks, and International Stocks. This totals ten different asset classes! As a rule of thumb, in order to gain the level of diversification achievable in mutual funds, an investor would have to commit at least $1,000,000 to each asset class.
Another advantage that mutual funds provide is the ease in which re-balancing a portfolio is achieved. For example, if the Large Cap. Growth Stocks portion of the account grew from $1 million to $1.2 million and it was the investor’s desire to reduce the asset class back to its original target, does the manager sell one stock or a little from each stock? The first option might eliminate a holding at an ill-advised time, while the latter option will produce large transaction costs. With mutual funds, the investor will effectively execute the more desirable second option without the transaction costs.
In addition, with the use of mutual funds Trust Point feels it is able to access some of the better investment personnel in the country. Some of the best managers require a minimum investment of as much as $10 million. Thus, by pooling the money through a mutual fund, we are able to meet such minimums and gain access.
Finally, at Trust Point we attempt to keep the cost low by accessing the least expensive class of shares available. All of these advantages can add up to substantial rewards for the investor!
The articles and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual.