Mutual fund investment has grown at an incredible rate in the past few years, with total investments over $12.3 trillion at the end of September 2007. That's an increase of 77% since the year 2000. The number of households in our country owning a mutual fund increased by 6.8% to almost 51 million in that time as well.
Why the growth in mutual fund investing? Well, for the most part the benefits are pretty straightforward. First of all, you get exposure to professional money management so qualified individuals are evaluating companies and not you. Secondly, you get diversification. What this means is that your risk is lower because you own many stocks instead of just a few. If one performs poorly, your exposure is less because it's only one of the many stocks you own. Typically, this diversification is available only to investor's with large sums of money to invest. Mutual funds provide that for the average investor because everyone's money is pooled to make purchases. Lastly, when you own shares of a mutual fund, your money is still liquid, meaning you can convert it to cash quickly if you need it.
Another contributing factor to mutual fund investment growth has been the increase in company sponsored defined contribution plans, called 401(k) or 403(b) plans. These plans allow an employee to take advantage of tax-deferral on retirement savings and, because of the benefits mentioned above, usually offer mutual funds as investment options.
Mutual funds are particularly good for those of us who would like to make sure that we are investing our money according to our moral principles. Many of the details about a company that allow us to evaluate if a company meets our criteria are not that easy determine. Fund managers typically subscribe to one or more services that will provide the information that they need to see if a particular company meets their investment criteria. Remember to review the investment strategy in the prospectus of a fund before you invest to see if the fund's strategy matches your morality.
There is another good reason for using mutual funds as an investment tool if your goal is to match your faith and your finances – shareholder activism. No company is going to change a policy just because you choose not to invest in them. If a mutual fund purchases shares of a company, it can use that ownership to open a dialogue with corporate executives about making changes. This is called shareholder activism. It can be something as simple as voting proxies to be sure that the company is practicing good corporate governance to sponsoring a shareholder resolution requesting a change in policy for the company.
With so many options available today, make sure you review the prospectus of a fund and only invest if the investment objectives are in line with your faith.
"Followers of Christ must avoid a tragic separation between faith and everyday life" — Economic Justice for All.
