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Discover the world of mutual funds

An easy way to invest in stocks and/or bonds is through mutual funds, or professionally managed portfolios. Investors buy shares in a fund, and the mutual fund company pools that money to invest on their behalf. A share represents a portion of the fund's holdings.

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What are the potential benefits of investing in mutual funds?

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.

Diversification

Because mutual funds can invest in many different stocks or bonds, they give investors an easy way to diversify their portfolio.

Low cost

Mutual funds offer an affordable way to invest in a wide array of stocks without paying transaction fees for each stock held.

Management

Experienced investment teams set the fund's strategies, research investments, make trades and monitor the fund's performance.

Diversification risk: Diversification and asset allocation may not fully protect you from market risk.

Management risk: There is no guarantee that a positive investment outcome will be achieved.

There are a couple of potential risks associated with mutual funds:

1. Potential for loss of principal

Portfolio managers can't guarantee the performance of the fund, creating potential for loss of principal on the investment.

2. The diluting effect of diversification

At times, a fund's diversification can have a diluting effect on positive returns. For example, if one stock in the fund doubles its share price, that's not necessarily reflected in the fund's overall return. as other stock in the fund may fall which can lead to an overall loss.

BlackRock

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