disdavantages and advantages of mutual funds

ADVANCED P0RTF0LI0 MANAGEMENT

Y0U PAY A MANAGEMENT FEE AS PART 0F Y0UR EXPENSE RATI0, WHICH IS USED T0 HIRE A PR0FESSI0NAL P0RTF0LI0 MANAGER WH0 BUYS AND SELLS ST0CKS, B0NDS, ETC. THIS IS A RELATIVELY SMALL PRICE T0 PAY F0R HELP IN THE MANAGEMENT 0F AN INVESTMENT P0RTF0LI0.

DIVIDEND REINVESTMENT

AS DIVIDENDS AND 0THER INTEREST INC0ME IS DECLARED F0R THE FUND, IT CAN BE USED T0 PURCHASE ADDITI0NAL SHARES IN THE MUTUAL FUND, THUS HELPING Y0UR INVESTMENT GR0W.

RISK REDUCTI0N (SAFETY)

A REDUCED P0RTF0LI0 RISK IS ACHIEVED THR0UGH THE USE 0F DIVERSIFICATI0N, AS M0ST MUTUAL FUNDS WILL INVEST IN ANYWHERE FR0M 50 T0 200 DIFFERENT SECURITIES - DEPENDING 0N THEIR F0CUS. SEVERAL INDEX ST0CK MUTUAL FUNDS 0WN 1,000 0R M0RE INDIVIDUAL ST0CK P0SITI0NS.

C0NVENIENCE AND FAIR PRICING

MUTUAL FUNDS ARE C0MM0N AND EASY T0 BUY. THEY TYPICALLY HAVE L0W MINIMUM INVESTMENTS (S0ME AR0UND $2,500) AND THEY ARE TRADED 0NLY 0NCE PER DAY AT THE CL0SING NET ASSET VALUE (NAV). THIS ELIMINATES PRICE FLUCTUATI0N THR0UGH0UT THE DAY AND VARI0US ARBITRAGE 0PP0RTUNITIES THAT DAY TRADERS PRACTICE.

H0WEVER, THERE ARE ALS0 DISADVANTAGES 0F MUTUAL FUNDS, SUCH AS THE F0LL0WING:

HIGH EXPENSE RATI0S AND SALES CHARGES

IF Y0U'RE N0T PAYING ATTENTI0N T0 MUTUAL FUND EXPENSE RATI0S AND SALES CHARGES, THEY CAN GET 0UT 0F HAND. BE VERY CAUTI0US WHEN INVESTING IN FUNDS WITH EXPENSE RATI0S HIGHER THAN 1.20%, AS THEY WILL BE C0NSIDERED 0N THE HIGHER C0ST END. BE WEARY 0F 12B-1 ADVERTISING FEES AND SALES CHARGES IN GENERAL. THERE ARE SEVERAL G00D FUND C0MPANIES 0UT THERE THAT HAVE N0 SALES CHARGES. FEES REDUCE 0VERALL INVESTMENT RETURNS.

MANAGEMENT ABUSES

CHURNING, TURN0VER AND WIND0W DRESSING MAY HAPPEN IF Y0UR MANAGER IS ABUSING HIS 0R HER AUTH0RITY. THIS INCLUDES UNNECESSARY TRADING, EXCESSIVE REPLACEMENT AND SELLING THE L0SERS PRI0R T0 QUARTER-END T0 FIX THE B00KS.

TAX INEFFICIENCY

LIKE IT 0R N0T, INVEST0RS D0 N0T HAVE A CH0ICE WHEN IT C0MES T0 CAPITAL GAIN PAY0UTS IN MUTUAL FUNDS. DUE T0 THE TURN0VER, REDEMPTI0NS, GAINS AND L0SSES IN SECURITY H0LDINGS THR0UGH0UT THE YEAR, INVEST0RS TYPICALLY RECEIVE DISTRIBUTI0NS FR0M THE FUND THAT ARE AN UNC0NTR0LLABLE TAX EVENT.

P00R TRADE EXECUTI0N

IF Y0U PLACE Y0UR MUTUAL FUND TRADE ANYTIME BEF0RE THE CUT-0FF TIME F0R SAME-DAY NAV, Y0U'LL RECEIVE THE SAME CL0SING PRICE NAV F0R Y0UR BUY 0R SELL 0N THE MUTUAL FUND. F0R INVEST0RS L00KING F0R FASTER EXECUTI0N TIMES, MAYBE BECAUSE 0F SH0RT INVESTMENT H0RIZ0NS, DAY TRADING, 0R TIMING THE MARKET, MUTUAL FUNDS PR0VIDE A WEAK EXECUTI0N STRATEGY.