When people think of investing, they tend to think of stocks and bonds, investing in companies that create productivity, employment, and profit. Investments in stocks and bonds are ways of sharing in that profit and ultimately in economic growth.
While companies are the engines of economic growth, other assets such as real estate and commodities—natural resources or raw materials—fuel those engines. Increased market transparency and access, largely through the technologies of the Internet and global communications, have made it possible for more investors to invest in the “fuels” as well as the “engines” of commerce. Real estate and commodities investing have become increasingly popular as diversifiers for a sound investment portfolio.
Mutual funds are not another kind of asset but another way of investing in any kind of asset. The fund is a pool capable of much greater diversification than an individual’s investment portfolio, given transaction costs. A mutual fund can also provide security selection, expertise, liquidity, and convenience. Some funds are even designed to perform the asset allocation task for the investor. Mutual funds are fast becoming the dominant investment vehicle for individual investors, changing the role of the broker and financial advisor.