Mutual Funds

Mutual Funds Walk The Fine Line Between Profit And Safety

By Steven Ircha

In today's frantic financial markets, many people are caught between the need to grow their wealth and the necessity of preserving their capital at a time when the usual rules of investing seem to have been temporarily suspended. One of the logical outcomes of such a situation is that these individuals have elected to scale back their desire for profitability in return for a little more assurance against complete financial destruction.

The most obvious choice for such strategists is to park their money in some ultra-safe asset such as very short term US Treasury bonds. Unfortunately, the low rate of return gets coupled with increasing inflation and results in a net capital shrinkage. While there are some investors who are willing to lose a guaranteed fraction of their money in return for the closest thing possible to utter security, there are even more who need to live off their portfolios. For those who are not able or willing to accept the low rates of return available today, mutual funds may well offer a good alternative.

For funds, their ability to move quickly as markets change remains a critical advantage, as does the greater wealth of information at the command of professionals. The typical investor no longer dares risking his financial security on a single stock play. Too many things that should have no effect on a stock, from news in a completely different market segment to bizarre computer glitches, have been battering away at stock values.

It is essential that the investor spread out his risk to the point where he is invested broadly enough to survive the simultaneous downturn of several of his chosen investment vehicles. Mutual funds are simply the best way to do this without having to individually purchase dozens, perhaps hundreds, of individual stocks and then watch every one of them 24 hours a day. It simply is no longer possible for an investor to spend the time necessary to fully protect himself. Someone else has got to do it. The markets today need to be monitored 24/7.

Another advantage of mutual funds in today's environment is their ease of purchase and sale. If you focus in on no load mutual funds, investors can move from one stock sector to another with the click of a mouse. This ability to completely reallocate fund sectors without spending tons of money on commissions or brokerage fees is tremendous.

Again, one of the main advantages of mutual funds in such an uncertain investment climate is that they offer investors someone alert and at the switch at all times day or night. This is a feature that even the most savvy lone wolf investor or most talented individual broker cannot match. There is simply too much going on all the time for anybody to leave their money unattended even for a second.

In addition, mutual funds broaden out the risk base so that an investor is not going to be destroyed by the blackest and most unanticipated of swan strike occurring in an individual stock. Finally, an investor surrenders day-to-day control over the details of his investment but retains broad powers of oversight which can be exercised through the process of switching between individual fund preferences. Mutual funds offer one way in which those wanting to invest in equities can do so more safety than purchasing individual stocks.

Steven Ircha is the Senior Managing Director of Aegis Capital where he helps individuals and institutions manage their investments. He lives in Bronxville NY with his wife and five children. Steven attended NYU, Brooklyn Law School and the Harvard Business School. He is also the assistant Scoutmaster of Bronxville Troop 5 and the Friends of Scouting Chair for the Westchester Putnam Council Boy Scouts of America. He frequently watches Jet's games with his brother-in-law,Woody Johnson,owner of the New York Jet's football team. To contact Steven, please call 914-361-1099 or email him at ircha@yahoo.com.