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Memos from Howard Marks: Ruminating on Asset AllocationMutual Funds
A practical, cost-efficient way to build a diversified investment portfolio
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The Basics
Mutual funds pool investor money and buy a portfolio of stocks, bonds and other investments
Mutual funds make it easier for individuals to invest in many opportunities rather than just a few. The combined holdings of the mutual fund are known as its portfolio. Each share bought represents an investor’s part ownership in the mutual fund and in the gains it generates.
There are many types of mutual funds, each with different features, risks and rewards. Typically, they specialize in an asset class, industry or theme, for example investing in such things as real estate, infrastructure or renewable energy.
Features
Potential benefits and key features of mutual funds include:
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Professional, active management
Fund managers research and select which securities to buy and then monitor performance
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Diversification1
Typically invested in a range of companies and industries, helping lower single-stock risk
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Daily valuation and liquidity
Investors can easily redeem shares for the current net asset value (NAV)
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Lower cost
Generally a more affordable way to invest in a wide array of stocks or bonds
1Diversification does not ensure a profit or protect against loss.