Security Benefits of Retirement Mutual Funds

Understand the security benefits of retirement mutual funds.stock market analysis screenshot image by .shock from Fotolia.com

Mutual funds are a popular retirement investment. Funds are typically made up of stocks, but may also be comprised of bonds as well. While IRAs, 401(k)s, and other retirement plans may offer a variety of options, they generally focus on mutual funds because of some key benefits that these investments offer to employees.

Low Fees for Index Funds

Index funds are a type of fund that passively tracks the performance of an underlying stock index. It does this by buying a wide range of stocks. These stocks are not actively traded. Instead, the stocks are held over a long period of time with the intent of mirroring the index. Because these funds are not actively traded, taxes, and other trading fees are often much lower than actively managed funds.

When you buy a mutual fund, you are automatically diversified across a wide number of stocks. This means that if one stock fails, you generally will not lose everything. The general idea of diversification through a mutual fund means that you can own one mutual fund, and that fund will invest 20, 30, 50, or 100 or more stocks and you don't need to worry about whether a handful of those stocks lose money because some of them will make money to compensate for your losses.

Open-ended mutual funds can be sold at any time on the secondary market and since institutional investors, like life insurance companies, buy and own mutual funds, you will almost always be able to find a buyer for your funds when you want to get out of the fund.