By nature, I hate risk. Sure, I know on occasion circumstances demand or persuade me to accept more than I desire. In those instances, I’m way out of my comfort zone. Yes, it can be exciting, but I would much prefer life grant me slow, boring, predictable moments that are within the scope of my abilities and emotions to handle. That’s my personality.
It’s also why many people hate investing, especially when it comes to learning how to choose a mutual fund.
“Mutual funds are boring investments,” they say. “I want the sexy action of the newest individual stock.”
“Mutual funds are slow,” they say. “I want investing performance measured in days or weeks, not years.”
“Mutual funds are predictable,” they say. “They mostly track the performance of the general market.”
To “they” I say, “OK.” If that is your risk tolerance, more power to you. But I won’t be recommending a seat on that roller-coaster ride for investors, especially beginners. Too much risk, too little diversity for someone just starting out.
In part three of this series, I introduced the investing term “diversification.” Diversification means to spread our money around. When we diversify, we don’t put all of our hard earned dollars into one specific stock. By placing money in different investments, we protect the whole, should one of our investments falter. It’s the #1 reason mutual funds are the best place for the investors – because even by only owning one fund, you get instant diversification. Here’s how.
What Is a Mutual Fund?