The Risk When Investing in Mutual Funds

by Gily Tenorio on August 4, 2013

in Mutual Funds

Do you know that investing involves risk? What do I mean? All investments have risk of losing money. It is the common attribute of all investments available these days.

 

If someone told you that he or she knows an investment without risk, it must be a scam. Perhaps, you have heard or read the past news of scams happened in our country. Many people were victimized because of the big returns and the guarantee presented to them.

Most of the victims don’t know that a legal investment has risk of losing money because no one can control everything. If someone can control what will happen, I will  be convinced that the investment he is proposing has no risk. But the truth is, no one can control everything in this world when financial aspect is concerned.

Even the greatest investors like Warren Buffet and George Soros cannot guarantee you that this one stock will make you rich by the end of the year because they can’t control everything. They can minimized the risk because they are great investors but they cannot tell you 100% that it will make money for you.

 

risk of mutual fund

 

 

Similarly, if you are interested in investing in mutual funds, you must be aware that it has also risks. However, the risk is lower than when you directly invest in the stock market by yourself.

Mutual funds is like you indirectly invest in the stock market. A company called the investment company is the one that will pick the stock or investment instead of you because it is the one who knows where to put the money.

An investment company like FAMI or ALFM hires a fund manager who will be the responsible for studying and investing the right stock. He or she has long years of experience when it comes to investing so the risk of losing money due to bad decision of picking stocks will be minimized.

 

Unlike when you invest directly to the stock market, you may never know which stock you should choose because there are many companies listed in the Philippine Stock Exchange today. However, you can still invest in the stock market with careful studying and understanding of the stock market.

 

Before I invested in the stock market, I studied the basic. You should know the basic of the company you’re interested so that you’ll know what is the business of the company, how they make money, who are their customers, how much they earn and their debt and so on.

 

If you want the deeper side of investing in stocks, you may also study the technical side like analyzing their financial report, assets, debt and liabilities. But if you don’t want to study these parameters, you can still invest in stocks by opening a mutual fund account.

Like what I said earlier, it has also risk but lower than when you directly invest in the stock market especially if you’re a newbie. I have mutual funds with FAMI and at the same time I also invest in the stock market.

 

I know that I only lose money in stock or mutual fund the time I sell my shares. Thus, I make it a resolution not to sell when I will lose. The only risk when investing in mutual fund is losing the money you put in it.

Your money cannot be zero in mutual funds, your principal maybe lower than before but becoming zero may not be possible. It will only happen if the company you invested is a scam.

 

About the Author:

GilGil Tenorio is a blogger, a husband, a father, and an active Christian. He likes playing guitar, C.S. Lewis, Plants and Zombies and NBA. Follow him at Facebook, Google+, YouTube and Twitter. Thanks!

 

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