The old adage “don't put all of your eggs in one basket” is sound advice for your investment portfolio. Investing in one or just a few stocks or bonds can expose you to substantial losses if any one holding falls in value. By spreading your investment dollars among several investments, you are diversifying your risks. Most well-apportioned investment portfolios will contain some allocation to stocks, bonds and mutual funds. Even if you have several stock investments, but the companies all operate in the same industry, you have not diversified adequately. It is important to select stocks and bonds from a broad range of industries and issuers for diversification to be most effective.
A very effective way to diversify, especially if you are just starting out, is to invest in mutual funds. Normally, a small investment would not allow you to achieve diversification because you wouldn't be able to spread your investment dollars among several holdings. When you buy a share of a mutual fund, you own a proportionate share of every security held in a large portfolio. A mutual fund provides diversification for you by pooling your small investment with those of many other people to purchase a large portfolio of securities which is professionally managed. This way the ups and downs of each separate security in the large portfolio have only a small effect on the value of the shares of the fund. There are many other benefits of investing in mutual funds which your Morgan Keegan financial advisor can share with you.
All investment products including mutual funds involve risk. Principal value and investment return will fluctuate, so an investor's shares/units, when redeemed, may be worth more or less than the original amount. A complete explanation of risks, charges and expenses may be found in the prospectus. Investors should carefully read and understand the information contained in the prospectus before investing or sending money.
