Mutual Funds Still Offer Benefits

In 2003, a series of scandals erupted in the mutual fund industry that grabbed headlines for months. Regulators reacted swiftly by proposing new rules and pursuing offenders.

Although the scandal was widely publicized, the affected companies represented a minority in the universe of mutual funds. It's important to note that there are thousands of mutual funds for investors to choose from today.

The fact is, mutual funds remain extremely popular. In 2003, net inflows to long-term mutual funds grew by 79 percent from 2002. In December 2003, after the scandal had reached a crescendo, more than $15 billion of new money flowed into long-term funds (stock, bond, and hybrid funds).¹

Why are investors sticking with mutual funds? It could be because they continue to offer benefits that are important to investors.²

Diversification
Mutual funds may own dozens or even hundreds of stocks at one time, offering shareholders a level of diversification that might be difficult to obtain on their own by buying individual stocks and bonds.³

Flexibility and Liquidity
With so many funds available, it's likely that you can find one fund or a combination of funds that is appropriate for your time horizon, risk tolerance, and personal goals. And when you own mutual funds outside a tax-deferred retirement plan, you typically have swift access to your money if a pressing need arises. 

Professional Management
It's possible for individuals to trade securities successfully for their own portfolios — provided they have enough time and expertise. Mutual funds are run by professional money managers who remove the burden of having to study company financials or continually watch the markets.

Mutual funds remain a powerful tool for investors all over the world. When reviewing your financial strategy this year, you may want to evaluate the role that mutual funds play in your portfolio. Call us for guidance.   

1) Investment Company Institute, 2004
2) There are fees and expenses associated with investing in mutual funds, including portfolio management fees and expenses and sales charges. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold by prospectus only. Be sure to read the prospectus carefully before deciding whether to invest.
3) Diversification does not guarantee against loss; it is a method used to help manage investment risk.

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