The world today is in need of professionally managed money. With the advent of the Internet came a new generation of people who discovered they can make, or in some cases play with, money online. We still hear of people in their shorts and t-shirts sipping coffee and tinkering away at day trading on the Internet.
The reality is a few grow their money, while many lose money.
The above mentioned scenario is a key contributing factor as to why professionally managed money is critical to the growth of money.
When investing in a mutual fund you aren’t simply purchasing pooled shares. You are investing with a mutual fund manager. A fund manager offers many benefits to investors.
Individually we often lack the time and desire to extensively research companies to invest in. The information that exists makes it difficult for us reach informed decisions. We are not only bombarded with information, but our emotions affect our decision making as well. The 24/7 news cycle constantly taps our emotions and causes us to react without pausing to think.
Fund managers put teams in place to do the research for us. They have dedicated staff working on behalf of investors. These teams are able to make informed decisions for investors without being affected by emotional thought.
Fund managers diversify the investments which helps protect your portfolio during down markets. When a portfolio is diversified, an investor reaps the benefit of not owning one or two stocks and therefore if one stock declines in value, the investor has other stocks that might be performing better thus holding up the portfolio.
Fund managers also hold cash in their portfolios. When the markets dropped in 2008 the panic was widespread. Investors were losing the value of their portfolios quickly, and anyone nearing retirement were making plans to hang on to their jobs for another five years. 1
Fund managers had cash sitting in their portfolios waiting for the opportunity to invest. They find value when stock prices are down as they are able to purchase more shares with the cash. These cash reserves alone do not drive the price of stocks up, but a fund manager can certainly add value to portfolios in down markets.
The great investor of our time, Warren Buffet, has said that “only when the tide goes out do you discover who’s been swimming naked.”2 This applies to managing money. Only when stock prices fall do we find out who has prepared their portfolios for a down turn and who is left watching their money disappear.
With professionally managed money investors are comforted with knowing someone is swimming with their shorts on. They have their fund manager to fall back on.