Question

What is life cycle investing? What would it mean to you as a young working professional, in respect to your investment portfolio?

Describe four advantages of investing in a mutual fund? What is the primary reason that would prompt you to invest with mutual funds?

Answer 1

Life cycle Investing

The whole concept of Life cycle investing is based on the idea of long term diversified investment over the lifetime of a person. Just like it would be a bad idea to invest in a single stock, it would also be a bad idea to invest over a short amount of time. So for long term benefits in the stock market, it is essential for an individual to both diversify his risk by maintaining a good portfolio and also spread his risk over a longer period of time, i.e, his lifetime. The life cycle investing is a relatively new concept that has gained popularity in recent years. Nowadays many private-sector retirement plans also offer life-cycle fund.

In order to do this, the investor has to enter the stock market in his early life. But since a lot of people are just starting out during that time, it may be a difficult task to consistently invest in the market. So for a young working professional, leverage with low-interest rate would be a good option. The idea here is to expand the life span of the portfolio. If one starts out early, he may end up with a good amount during his retirement.

Mutual Fund

Mutual fund is one of the most suitable areas of investment for a small investor as it offers an opportunity to invest in a diversified, professionally managed portfolio as a very low cost. Mutual funds have various schemes in order to cater to the needs of different kinds of investors, different age groups of investors. Advantages of investing in a mutual fund are:

1 Diversification.

Depending on the scheme, a mutual fund invests in various different kinds of securities. So eventually the investor's money will also be diversified and face a relatively low risk. This enables the investor to enjoy the benefits of low risk by not having to invest a fortune.

2. Economical

Almost any class of person, rich or poor can invest in mutual funds. Most mutual funds have minimum initial investment requirements. If one plans on investing in a SIP (systematic investment plan), the initial investment may be much lower.

3.Expertise

The investor doesn't require any expertise to invest in Mutual Fund. An investor doesn't need to invest his time, energy or his money to do market research since mutual funds are professionally managed.

4. Accessibility

Mutual funds are very easy to understand and are accessible to everyone. Brokerage firms, discount brokers online, mutual fund companies, banks, insurance companies are some of the places where Mutual funds are offered. Investors can open an account with these entities in no time at all.