Mutual funds allow multiple investors to pool their money into an investment package that would be difficult to start on one's own. These funds are professionally managed and typically include a collection of bonds, stocks, or other securities. They are an excellent retirement planning tool, as they come with lower risk and a number of other benefits. Here's what you should know about how mutual funds work and the advantages they offer.

How Do Mutual Funds Work?

Simply put, a mutual fund is a way for you to combine funds with other investors in order to mutually buy stocks, bonds, and other investments. The other investors are not typically people you know, but they are often in the same position of starting their retirement planning and wanting to increase the funds they've set aside for this purpose.

Each investor starts by making an initial investment in the fund. A professional money manager determines which securities should be purchased and when they should be sold. It's not uncommon for a single growth stock mutual fund to invest in multiple companies, sometimes hundreds of them, which essentially gives you a small piece of ownership and better potential for bigger returns. While there are fees and expenses involved with managing mutual funds, you still receive the vast majority of the income they generate.

What Are the Benefits of Mutual Funds?

Retirement planning is a crucial part of preparing for the future, especially with costs of living on the rise and the increased lifestyle and health care needs that tend to come with aging. Mutual funds offer a relatively safe way to invest in your future without a lot of upfront cost. In most cases, the required minimum initial investment is much less than what it would cost to build an expanded portfolio of individual stocks. Mutual funds let you share any risks with other investors, which thereby reduces the amount of personal risk for each one.

Diversification is key to successful investing. Mutual funds diversify your investment instantly, as the entirety of your money won't be put into a single security. With a more diverse portfolio, you'll have a better chance of reaping substantial returns.

Your shares from a mutual fund can be bought or sold once a day at the close of the market, so they are accessible and convenient. Also, you can reinvest dividend income or make extra investments any time.

If you want to enjoy the benefits of mutual funds for your retirement planning strategy, Quinn Agency can help. Since 1992, they have been serving the Meadville, PA, area. They also provide a variety of insurance solutions, including auto, home, and life insurance. Call (814) 337-2766 to schedule a consultation or visit their website for more information.