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One nice thing about mutual funds is that they do
the investment research for you. Mutual fund companies hire
full-time professional managers to conduct research, analyze the
market, and buy and sell securities for the funds. The portfolio
manager is the person who selects a fund's securities. Managers buy
and sell the investments according to funds' investment
A fund's director contracts with an investment
advisor and his or her research staff to manage the fund. Fund
investment advisors are usually highly educated and have five or
more years' experience in analyzing securities. The advisor usually
receives an annual fee based on a percentage of the fund's value.
Sometimes a mutual fund has a management team rather than an
individual manager. A mutual fund managed by a team may be able to
conduct more thorough research than one managed by a single
individual. Because mutual funds are professionally managed, you
will have to pay management fees to invest in one.
Another advantage of mutual funds besides
professional management is something called diversification, which
we will discuss next.