Diversification
Mutual FundsSponsored Content

Curriculum Content
The largest financial benefit of a mutual fund is the instant diversification that occurs. Mutual funds often own hundreds of different investment instruments. Your investment’s performance is spread among these instruments. If a single investment flops, there are hundreds of others which can compensate for that loss of performance.
You could try to invest in hundreds of investments directly. There are problems with that idea. Firstly, you’d pay commissions in the tens of thousands of dollars simply to purchase the investments. Then you’d have to pay the purchase price for each individual investment. This would be only to purchase initially, you’d encounter far more from selling and trading continuously. In a mutual fund this expense is spread over thousands of investors within the fund. You might pay a load fee and a minimum entry fee of a few thousand dollars, but this is nothing compared to the cost of doing this on your own.
You’d also have to pay in time. You would have to research which firms are worthy as initial investments. You’d have to maintain information, analysis, and research on every single investment. You’d have to know when to sell, and why to sell each single investment instrument. You’d have to do it all, by yourself. It is substantially easier to use a mutual fund.
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