Mutual funds are risky. Why is everyone still investing in them?

Category: Growth (Pillars)Mutual funds are risky. Why is everyone still investing in them?
Hansi Mehrotra Staff asked 7 months ago

Life is risky and everyone is still living it, right?

Jokes aside… So, two things. One, mutual funds are not risky by themselves; mutual fund is just name of the structure. It really depends on what kind of mutual fund you invest.
Secondly, there are different types of risks. There is ‘inflation risk’ – the risk that you might not keep up with inflation. There is a risk that you might not meet your goals over the long term. And then there’s some ‘market risk’, which everyone wants to hear about.

You need to make a trade off among all three of them. So, if you do need to beat inflation and meet your goals, you do need to invest in something that has a combination of equity and debt, like a balanced fund or equity fund for that matter, over the long term. The market risk is basically someone telling you what they could offer you that day. Here’s the thing, you don’t have to sell it that day. You need to invest over the long term anyway, so it doesn’t matter what the market risk is… you just ignore it. Over the long term, you will meet inflation and your goals. So, embrace risk.