Investing in mutual funds is increasingly becoming a popular savings option among Americans to realize their financial plans, especially retirement. As such, the United States Securities and Exchange Commission (SEC) promotes mutual fund investing as a good way to plan for the future provided the prospective investor has full understanding of the mutual fund system to avoid risks and pitfalls that may arise.
Advantages of a mutual fund investing include active management of the investor's money through diverse investments, meaning the money is “at work,” and not idle or earning minimum like when it is opted to be put in a savings account. Likewise, the money is assured of professional management as fund and portfolio managers have the required experience and expertise to play the investment market. Mutual fund participation is also affordable, with some as low as $250 per share. Best of all, the investor's shares can be redeemed anytime they need them, as provided by the law.
But just like other investment types, mutual funds also pose risks and potential losses which a prospective investor must be fully aware of. First, mutual fund shares are not guaranteed by any government regulating body, so there is really no protection for your money. Second, your money will not be gaining its full face value amount because of certain fees (operations and marketing costs and sales charges, among others) which lowers the actual investment rate. Third, the investor does not have full control on what investment or bond to trade or buy and the best time to play it as opposed to investing directly in the trading market, because those decisions are made by the fund manager.