Recently, I attended a women’s event at Motley Fool. It was an engaging opportunity to meet Megan McArdle, author of The Upside of Down, which inadvertently relates to the experience of investing.
In order to become successful, you have to learn from your failures. You’ll probably make some poor choices along the way, but you have to remember that you’re gaining knowledge that you didn’t have before. The goal is to fail fast and early in your investment journey so you can recover, understand the risks and build on your newfound wisdom.
After the book discussion, the women at the event were separated into groups based on their investing experience. I selected the advanced class, of course. Even in that, I was curious how the discussion would go. One of the first questions posed to the group was: how long have you been investing? Most of the women had been doing it for 20 years or more. One lady revealed she had been investing since the 1970s. I thought, wow, I love it! We were sharing opinions about stocks that each of us owned and I was enjoying the conversation. As I pulled back to be more observant and listen, I realized the investment discussion revolved only around owning stocks.
One young woman brave enough to disrupt that chatter asked about mutual funds. She wanted to know if they were a viable option for growing her investment portfolio. The talk quieted for a moment when another attendee shared her thoughts and opinions. She stated that mutual funds allowed small or novice investors a way to pool their money together in order to invest in stocks. Then another woman chimed in that they could be a way to get exposure to specific industries or countries that an investor may not be familiar with or have time to personally research.
After listening to that exchange, I got the impression that most of the women in the room felt that mutual funds were really for the novice investors. I left wondering if mutual funds are still relevant or are they truly for a beginner?
The answer is in the numbers. Mutual funds are the major investment in 401(k) plans and yes, they are still very relevant. According to the history of mutual funds, one of the first investment funds was created and named after Dutch merchant Adriaan van Ketwich. His fund’s name translated to mean “unity creates strength.” That, too, is still very relevant.
The underlying principle of mutual funds is to pool funds collected from many investors and spread risks among the group for the purpose of investing in different types of securities. With $15 trillion in assets, the U.S. mutual fund industry remains the largest in the world as of the end of 2013. So based on this statistic, they are not just for new investors.
No one type of investment reigns supreme over others, just like no one pair of shoes works with every outfit. Mixing investments based on your specific tolerance for risk is what creates that special combination that best suits you and your goals.