Mutual Funds

Diversify easily and safely with one purchase.

As an investor, you are more than familiar with the importance of diversifying your portfolio. Diversity allows you to protect yourself from an asset that may lose value. A diverse portfolio also allows you to profit from several different sectors.

While diversifying is an important step in financial planning, hedging, and building a well-rounded portfolio, it can be expensive, require a lot of management, and come with numerous risks. With a mutual fund, individual investors can make one purchase that gives them access to a range of securities that are managed by a trustworthy manager.

What is a Mutual Fund? 

A mutual fund is a pool of funds collected from investors that are invested into stocks, bonds, money market instruments and more. These funds are controlled by money managers who distribute the money in order to produce capital gains or income for the individual investors.

Through mutual funds, an individual can tap into the advantages of portfolios that are professionally managed that contain equities, bonds, and other kinds of securities. The individual units, or shares, are purchased as needed at a net asset value (NAV), which is calculated from dividing the total value of the securities in the portfolio by the total amount of outstanding shares.

How it Works

Mutual funds are both investments and companies. The same way a person buys a share of a company, they buy part ownership of a mutual fund and the assets within. Instead of producing a product or service, a mutual fund company makes investments.

When the money in the fund is pooled, the money made by the investments is used to purchase other securities, stocks, and bonds. The price of the shares is completely dependent on the performance of the assets bought by the fund.

A mutual fund company is run by a manager that is hired by a board of directors who is legally obligated to act in the best interest of the shareholders. It’s not uncommon for the manager to also own a share of the fund.

Like any company, a mutual fund has a staff. Along with the fund manager, there may also be a few analysts that are employed to help pick investments for the fund. An accountant is hired to calculate the NAV of the fund, determining if the price goes up or down each day. Compliance officers are also needed, such as an attorney, to ensure the company is abiding by the law.

Advantages of a Mutual Fund

Like other kinds of funds, like ETFs, mutual funds are great for diversification. An average mutual fund will invest into hundreds of different securities. They allow investors to gain from investment types they may not invest in individually – with less risk. Investing in individual companies and hedging them with other individual investment purchases can become costly. Mutual funds allow for a less expensive way to diversify a portfolio with a single purchase.

Another advantage of mutual funds is they are managed by money professionals who know how to work with both high net-worth investors, as well as those just starting out. These managers research securities and creating investment strategies, putting in the work so the investors don’t have to.

Mutual funds are traded on major stock exchanges so they are easy to access and a highly liquid investment.

Types of Mutual Funds

There are several different kinds of mutual funds which contain different kinds of securities.

Fixed Income Funds

A fixed income fund buys investments that will have a return that is a fixed rate, such as a government bond or high-yield corporate bonds. The goal with this kind of fund is to create interest income that can be passed on to the shareholders.

Balanced Funds

With a balanced fund, or asset allocation fund, the company invests in stocks and bonds in hopes of reducing exposure risk to one asset class or another. While the goal is to lower risk, the risk still remains, and shareholders of a balanced fund are not more protected than any other mutual fund shareholder.

Equity Funds

An equity fund will invest in stocks in order to grow fast. The risk with this kind of fund is usually higher and investors are more likely to lose money. There are different kinds of equity funds that specialize in growth stocks, income funds, value stocks, and more.

Index Funds

The manager of an index fund will buy stocks that are corresponding with a major market index like the S&P/TSX Composite Index. As you may expect, the value is expected to rise and fall as the index goes up and down. These funds often are less expensive to manage because the manager doesn’t have to do much research to make decisions.

Specialty Funds

A specialty fund operates the way you may expect. They focus on special sectors like commodities and real estate.

Alpenrose

Alpenrose Wealth Management International AG, the sister company of Alpenrose Wealth Management AG, is now a registered investment advisor at the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.

Building on many years of experience in private banking in Switzerland, Alpenrose Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well known for being sophisticated and discreet. In 2017, it was reported that $7.5 trillion in assets are held in Swiss banks almost 51% of that is generated from clients outside of the country. Choosing Switzerland as a banking destination is choosing years and years of financial stability and growth.

The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best-capitalized banks in the world.

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