Funds Provide Stability, Guide You Down the Road Less Traveled, and Balance Your Investment Style

You can count on them

Consider this data from the recent past: More than 2,000 stocks (17%) in Morningstar's database returned over 20% in 2011; only one domestic U.S. stock fund did the same. But how many U.S. stock funds lost more than 20%? Only 31. And how many stocks lost a fifth of their value in 2007? More than 5,600.

Funds take you to new territory

Many stock investors favor the big-name technology, telecommunication, and services stocks—such as Microsoft (MSFT) and Walmart (WMT)—that keep our economy humming.

But what about micro-caps or small foreign companies with unfamiliar names? Such off-the-beaten-path securities aren't within most stock investors' purviews. Nor are such stocks easy to analyze, buy, or sell.

That's where a mutual fund can help. Some funds invest in micro-caps; others invest around the globe; and still others focus on markets, such as real estate, that have their own quirks. Stock investors who turn over some of their dollars to an expert in these areas gain exposure to new opportunities without having to learn a whole new set of analytical skills.

Funds won't all crash at once

But there will be a time when your style falters, at least temporarily. Biotech underwent a fierce correction in early 2000, and investors who stashed their money in Warren Buffett's wide-moat, easy-to-understand businesses found it tough to profit in 1999. Tech's loudest cheerleaders silenced their rah-rahs as Nasdaq spiraled in 2000. Those holding REITs and financials felt the pain in 2007. And in 2012, energy and basic materials stocks lagged most other categories.