With a mutual fund, you pay a small annual fee to have your investment managed by experienced professionals. The fund manager selects individual securities such as stocks, bonds, or money market instruments that should help the fund achieve its particular objective. Many managers work closely with a team of research and credit analysts in making buy and sell decisions. Each mutual fund share you own is one slice of a huge pie composed of many different stocks, bonds, or other securities. The greater the number and variety of holdings within the portfolio, the smaller the impact on the fund's share price if a particular holding performs badly.
Diversification is a cornerstone of risk management.
Funds are required by law to meet certain standards of diversification, and many funds exceed them. It's easy to sell your shares if you need cash. You can sell them any business day at the current market price less sales charges or redemption fees, if any. Keep in mind, however, that the share price will reflect financial market developments and may be higher or lower than the price originally paid. Services vary among mutual fund companies, but the larger ones provide a broad array that makes investing basically hassle free.