Advantages & Disadvantages of Investing in a Mutual Fund Family

Mutual fund investors have significantly different needs based on their investment and financial goals, and you often will need to spread your assets over several different funds in order to move toward your objectives. Most mutual fund companies offer many different funds to help with this, and they try to keep all of your money in one place. Just because this is convenient, however, does not mean that it is the best decision for your money.

Flexibility of Choosing Investments

Investing in one family of mutual funds allows you significant flexibility in choosing your investments as well as the flexibility to move your money between different investments. Most fund families offer easy transfers among their funds and usually do so without charging you a fee. This can accommodate you as your investment goals change or your tolerance for risk increases or decreases. It is also helpful if you anticipate needing some of the money in your mutual funds in the short term, as you can transfer money from a stock mutual fund to a money market fund easily to provide the liquidity you need.

Name-Brand Recognition and Trust

Some of the big-name fund families have been around for years, and many are household names. If you developed trust for a particular mutual fund based on your own experience with that fund, you may transfer some of that trust to other funds affiliated with the same fund family. This may give you a more comfortable feeling about your investments, allowing you to worry less about whether your money is in the right place.

Absence of Top Performers

Although a mutual fund family may have a great reputation based on the performance of a few of its mutual funds, other funds within the family in different categories may not rise to that level of quality. It is inconceivable that any fund family would have all of the top performers across every category. For this reason, selecting a fund family because of its reputation for large-cap stock funds may commit you to the less-than-stellar performance of its bond funds for your bond investments, for example.

Diversification Mitigates Risk

Just as experts recommend diversifying your investments in the stock market, diversification with your mutual fund choices may be helpful as well. By spreading your investments over several mutual fund families, you will be in a better position if one of those funds underperforms. In addition, you may expose yourself to additional benefits offered by some mutual fund families. For example, one fund family may offer a low-interest credit card through an affiliate and another fund family may offer free check writing with its money market mutual funds. By investing in both, you can take advantage of the benefits of both fund families.