Strategies For Investment in Mutual Funds – Dollar Cost Averaging & Investment Diversification
For investment in mutual funds, there are two very effective strategies that you can utilize namely the dollar cost averaging and investment diversification. Mutual funds are probably the best investment vehicle in the financial market available to novice and inexperienced investors. The main reasons for this statement are:-
1. Investors who have just started on their working life can invest with the limited funds available to them.
2. Mutual funds offer a broader choice of funds such as balanced funds, bond funds, growth funds etc. Hence, this option offers diversification in investment for the inexperienced investors.
3. Investors can redeem their investment anytime due to its liquidity.
Many articles have been written on the advantages of dollar cost averaging in particular to investors who do not have the know how and experience in the stock market. Markets may rise and fall as shown in the volatility of the markets in recent months, but generally and historically the market tend to show a long term upward trend. As mutual funds allows investment to be done in a small amount, it is one of the only investment vehicle made available to the ordinary men in the street who can only invest a fixed amount at a regular interval of one month or 3 months depending on his financial resources, by utilizing the dollar cost averaging strategy.
With the variety of choices of funds that most mutual fund companies offers these days, the inexperienced investors do not need to look further into other investments for their asset allocation mix. The investor can shuffle and diversify their assets into the various funds available in accordance to their risk profile and time horizon. Due to the liquidity of mutual fund investment, switching of funds can also be done whenever appropriate based on the prevailing market condition.
Hence, in the investment planning process, the two strategies of utilizing the dollar cost averaging and investment diversification through investment in mutual funds should not be overlooked by the ordinary folks in the street who due to limited funds have no other or very little other options to invest in the financial market.