5 Reasons Why Mutual Funds Will Outperform Stocks

For most investors, the magic number before stepping away from mutual funds should be roughly 1/2 of a million dollars. This is because at that level, dedicated investment managers will take and spend the time to manage your portfolio for a decent chunk of change, which in many case is tax-free. So where should you invest while you build that nice little half-mill? Why, funds of course (including ETFs). Here are five reasons why funds and ETFs are the way to invest:

1. Mutual funds offer professional investment management for a marginal fee. While most dedicated investment managers will argue that their slightly higher fees (often) are tax-free, they are often higher than what most mutual funds will charge. Ultimately, the quality of mutual fund investment management is either greater than or equal to that of dedicated investment manages (in fact, many investment managers are the same if you are dealing with a large money manager anyway).
2. Funds provide a great deal of diversification. While there is a risk of "over" diversification, mutual funds aim to return the highest return with the minimal risk. This means no single security should cripple the fund.
3. Funds are extremely transparent, highly regulated and easy to understand. The quality of information about specific funds is quite high. Finding out information about potential investments is simple.
4. Fund offerings are diverse enough to fill whatever gap an investor needs to fill. Whether an investor is looking to round out their portfolio with bonds, small cap value securities or even steady, large cap dividend-paying securities, there are numerous funds and fund companies that exist to meet that specific need.
5. Funds are easily accessible often at no cost. Depending on how you invest, there are often ways to purchase mutual funds without paying a Load (think of it as an administrative charge for making the purchase) or a transaction fee (this is similar to a trade commission).

As demonstrated above, there are few reasons why funds cannot meet an individual's specific investment needs. Of course, this argument can be invalidated by the fact that many funds do hold a lot of securities. So much to the point that all but system risk is diversified out of the investment. And this is, of course a valid argument... provided that the investor has the knowledge and resources to outperform the fund to begin with.

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Chris has more than 16 years of experience with Investments. He is the Fund Advisor for the MutualFundSite.org, a website that suggests that people who want to know Where To Invest are best purchasing Mutual Funds in their portfolio(s).

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