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Advantages

  • Professional money management
  • Small investment amounts
  • Diversification
  • Liquidity

Tradeoffs

  • Fluctuating share values
  • Some money kept in cash for fund liquidity needs
  • Potential tax inefficiency
  • Mutual fund fees and expenses
 

Investing Through Mutual Funds and ETFs

You can invest in all three major asset classes through mutual funds, which pool your money with that of other investors. Each fund's manager selects specific securities to buy based on a stated investment strategy.

Mutual funds offer two key benefits. Because most mutual funds own dozens or hundreds of securities, you achieve greater diversification than buying a few individual securities on your own. Also, the fund manager's expertise is part of what you pay for in buying mutual fund shares.

A mutual fund may invest in one of the three major asset classes, or combine them. For example, a balanced fund typically includes stocks and bonds. A lifecycle or target fund adjusts its mix of investments over time, investing more conservatively as the fund's target date gets closer. With an actively managed mutual fund, the fund manager buys and sells specific securities, trying to beat a benchmark index such as the S&P 500. A passively managed or index fund tries to match the return of a specific index by holding only the securities included in that index.

Note:   Before investing in a mutual fund, carefully consider its investment objectives, risks, fees and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.

Like index funds, exchange traded funds (ETFs) typically invest in a group of securities represented in a specific index, and the way they're organized means that expenses typically are lower than those of actively managed mutual funds. Unlike mutual funds, ETFs are traded throughout the day, and can be bought on margin.

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Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.