A typical stock fund, for example, might own shares in more than 100 companies. And you can get added diversification by buying several different funds, with different objectives. Diversification, however, does not protect against loss or ensure gain. Professional managers direct the funds by buying and selling to meet the fund's objectives. Investors are regularly credited with profits, or loss, in proportion to the number of shares they own.
Many investors use mutual funds to expand their portfolios to include worldwide markets.
Most experts agree that international investing is smart, both as a hedge against slow times at home and to take advantage of strong economies abroad. But investing overseas can be riskier, for reasons ranging from currency values to taxation policies. You might want to avoid any fund whose high returns are based on one or two stellar years and eight or nine dull ones. Risk isn't necessarily bad if you're investing for the long term and you can tolerate some setbacks without selling in panic if the fund drops in value. If you buy a mutual fund through a broker, it will probably be a load fund, which means you pay a sales charge.