If you are an investor who has trouble trusting your money to an investment company, you are definitely not alone. Many people do not feel comfortable making investments because of the risks involved. Here are a few reasons to trust your money to an investment company.
1. Financial Reward
One of the major advantages of trusting your money to an investment company is the potential reward that you can gain financially. By investing in a mutual fund, you will be able to increase your investment over time. With the power of compound interest, you will be able to create a large portfolio over time. If you do not invest your money and simply leave it in a bank account, you are only counting on yourself to increase your wealth. By getting your money working for you, you can reach your financial goals faster.
2. Regulation
Even though investment accounts are not insured by the FDIC, investment companies do have to deal with federal regulations. The Securities and Exchange Commission (SEC) is the governing body over mutual funds and investment companies. The SEC uses a variety of procedures and regulations to maintain integrity in the industry. For example, mutual funds are subject to surprise visits by SEC officials. This means that they have to be sure to keep everything working according to regulations, or they could face significant fines. The SEC acts as a watchdog for the average investor by enforcing rules for investment companies. Periodically, investment companies have to provide the SEC with financial documentation with all of the information about their accounting practices.
3. Audits
Mutual funds and other investment companies also go through an auditing process. Public accountants will review their account and determine if they are correct. This provides some assurance from a third-party that the accounting is being handled correctly by the investment company.
4. Prospectus
The investment company is also going to send you a prospectus every year. This is a detailed document that provides you with information about their investments. This document will outline the investment strategy and show all of the holdings of the company. The prospectus will also outline all of the individual fees or costs associated with investing with the company. This is a good way to review what you are being charged and make sure that you agree with all of the charges.
5. Independent Directors
An investment company or mutual fund has to have an independent director who sits on the board. The requirement of such an independent director was established by the Investment Company Act of 1940. This provides a way for an independent director to sit on the board and play the role of watchdog. This independent director will review all of the individual investment decisions made by the company and make sure that they are ethical. He or she will review everything that goes on in the investment company and determine if the transactions and decisions are in the best interest of investors.
