Question One
One of the key advantages that mutual funds offer in comparison to company stocks is diversification. In particular, mutual funds will offer the investor diversification by means of the coverage of a range of stocks. The inference of this is that a company stock bears more risk in comparison to a mutual fund. Basically, when an investor invests and owns one company stock, then it implies that he bears the risk of the company, which may not be applicable in other corporations within the similar market sector. This means that if the firm goes through an adverse experience, for instance a manufacturing center breaking down, then the investor experiences a loss (Allaria, 2016).
As a result, investment in a mutual fund means that the investor has a number of different assets within the portfolio. This curtails the investor’s general investment risk as it facilitates spreading the risk faced to various assets. Mutual funds provide the benefit of diversifying investor holding not only across different classes of assets but also across different corporations. An additional advantage is that a mutual fund is run by expert managers with great proficiency who make the investment decisions. This implies the investor does not...
References
Allaria, J. (2016). Why would a person choose a mutual fund over an individual stock? Investopedia. Retrieved 3 October 2017 from: http://www.investopedia.com/ask/answers/05/062305.asp
Smith, J., Smith, R. L., Smith, R., & Bliss, R. (2011). Entrepreneurial finance: strategy, valuation, and deal structure. Stanford University Press.
Zacks. (2017). What Advantages Do Mutual Funds Offer Compared to Buying Particular Stocks? Retrieved 3 October 2017 from: http://finance.zacks.com/advantages-mutual-funds-offer-compared-buying-particular-stocks-5069.html
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