Advantages To Mutual Funds

Advantages to mutual funds — investing in mutual funds is a truly passive way to build wealth. Here are 5 advantages of mutual funds. I am not a licensed investment advisor and this article is not investment advice. 

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Mutual funds are often criticized for their high management expense ratio (MER) fees.

However, there are plenty of advantages to mutual funds for people who don’t want to spend a lot of time on investing.

Even though I am primarily a dividend investor and I do not include mutual funds in my personal portfolio, I still believe mutual funds are a great investment vehicle.

Based on my experience working as a mutual fund advisor, I will share my perspective on the advantages to mutual funds.

Let’s dive in.

Advantages To Mutual Funds

Truly Passive

In truth, most forms of passive income aren’t really passive. 

For example, it requires research and analysis to own dividend stocks. 

But when it comes to mutual funds, they are truly passive.

Besides setting up an account, you really don’t have to do anything except regularly contribute. 

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Professional Management 

Rather than making your own investment decisions, mutual funds offer professional money managers who make investment decisions for you.

They decide which stocks to buy and sell for you.

You don’t have to concern yourself with what is happening with the market unless you want to.

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Advice

One of the key advantages to mutual funds in comparison to ETFs or Index investing is that mutual funds offer advice. 

There are mutual fund advisors that will help you decide your risk tolerance and which mutual funds to invest in.

Although mutual fund advisors are usually limited to what the firm offers, it’s still an accessible, affordable way to get investment advice. 

Reassurance

Frankly, investing in an S&P 500 index fund like VSP is a better investment than any mutual fund.

For a much lower fee, you will get the market average, which usually beats investment advisors.

However, when there is a downturn in the market, there is no one there to tell you what to do. There is a lack of reassurance if you are doing the right thing.

But if you are a mutual fund investor, you have a representative to reassure you and inform you about the market’s behaviour.

Even if you don’t call to talk to an advisor, you can rest assured knowing professionals are managing your money for you.

Mutual Funds Are Better Than Not Investing

Simply put, investing in mutual funds is better than not investing at all. 

Mutual funds are still superior to holding cash, unless you have a short investment time frame.

To those who oppose the pricey MER fees, I’m with you. I want to avoid paying investment fees as much as possible. In fact, I’m aiming to spend zero dollars on commission fees in 2022.

With that said, earning 5% on a mutual fund after a 2% MER is subtracted is still better than losing money by holding cash.

So, if you are not comfortable selecting individual stocks or index investing, mutual funds are an excellent option to consider.

Advantages To Mutual Funds — Final Thoughts

Due to their high management fees, mutual funds attract a lot of negative attention.

But for some investors, there are many advantages to mutual funds.

For instance, mutual funds are truly passive. You really don’t have to do any work at all after the account is set up. You can even set up automatic recurring deposits.

Moreover, mutual funds offer professional management, advice, and reassurance for a reasonable cost.

At the end of the day, it’s better to earn 5% after a 2% MER than it is to lose buying power by holding cash. Inflation erodes the buying power of cash, so it doesn’t make sense to hold cash unless you are saving for a short term goal.

Personally, I still prefer dividend investing, growth stock investing, and index investing over mutual funds.

But if you aren’t as interested in investing as I am, mutual funds could be a great option to grow your wealth as passively as possible. 

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