Last week was a good week for the Dow, although it’s still below its level of a month ago and it still faces the problems we’ve previously written about (and others). What’s an investor to do in this uncertain environment? Don’t try to time the market and invest for the long term are the obvious answers. But, what to invest in? Mutual funds, of course! They can help you reduce your investment risk in three ways:
- Professional management. These guys come to work every day to mange your investments. Well, that’s partially true, they come to work to make a living and part of their job is to grow their assets under management but they do spend more time managing their funds then you or I can spend on our investments.
- Diversification. Most mutual funds are well diversified. You might not have the assets (or the time) to build a well-diversified portfolio. And, in this increasingly interconnected world, your portfolio might not be as diversified as you think.
- Target investments. Mutual funds enable you to pick investment categories, i.e., big cap stocks, foreign stocks, short term bonds, and that’s a good thing. It helps you match your risk tolerance and investment objectives.
Most funds try to stay fully invested and not time the market. If you don’t believe in the 25 second shot clock for investing that’s good but it also means that most funds will go down when the market goes down. Don’t panic, don’t try for the three point shot, and don’t foul out.
