Diversification is the main idea behind mutual funds. Smart investors should hold man types of assets, which includes stocks, bonds and cash. Diversification can lower risk because when some assets are up in value, others are usually down in value. The spreading of trading costs over a larger investment in-turns brings the percentage of transactions cost down in a mutual fund. Additionally, each investor does not have to worry about doing research which further saves expenses. Mutual funds also keep track of when people buy and sell. This makes tax reporting easier and lowers record keeping costs. Before buying a mutual fund, one should consider the following five key questions. First, how has it performed? Second, how risky has it been? Third, what does it own? Fourth, who runs it? Lastly, what does it cost?
Vanguard Explorer is a small growth fund that produces above average returns and has little volatility compared to its peers. The performance? If I had the money to invest I would probably go for the more risky stock funds that have the ability to produce higher returns. I am young and have the opportunity to fail and then get back in the game.
Studies have shown that past risk is a good indicator of future risk. Standard deviation is the most used to measure a funds risk. It is good to use because it provides a precise measure of how varied a funds returns have been over a particular time frame. The standard deviation will be greater the more a funds return fluctuates from month to month. Vanguard Explorer standard deviation is 15.94, which is around the average of other small growth funds. So, it seems to have consistent returns com ...