Funds Provide Stability, Guide You Down the Road Less Traveled, and Balance Your Investment Style
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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: according to Morningstar Direct, the Morningstar US Market Index surged 26% in 2023, while the average large-blend fund returned about 21%, and large-growth funds soared roughly 35%. Hundreds of U.S. equity funds easily cleared the 20% mark. Contrast that with 2022, when many sector-focused funds fell more than 20%, while diversified core funds generally held up better. This shows why funds can help smooth out extremes compared to individual stocks.
Things To Know
- Mutual funds can give you exposure to areas of the stock market you might otherwise ignore.
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. Investors who stashed their money in Warren Buffett’s wide-moat, easy-to-understand businesses found it tough to profit in 1999. Tech stocks slumped in 2022 but soared in 2023. Energy stocks lagged in 2020 but surged in 2022. REITs and financials struggled during the 2008 crisis, while biotech faced sharp corrections in 2000.