Mutual funds today are as easy to purchase as making a phone call or a trip to your computer. Fund families (large investment firms or brokerage houses with many funds), seeing the serge in popularity and wanting to make funds easily accessible to all investors, have toll-free numbers and Web sites that make it easy for you to buy and sell mutual funds. Transactions are also, occasionally, made by the old fashioned method of “snail” mail, although fewer people are doing that.

Electronic trading has allowed investors to trade at all hours from the comfort of their own homes. It’s not hard to find the Top 10, Top 20, or Top 50 funds on your browser, as rated by some leading financial source, and then buy them online. It is also not hard to get “addicted to trading” and find yourself overdoing a good thing. The accessibility and ease of trading online and through toll-free numbers has led many overzealous investors into deep trouble. Many new investors need to learn to be patient.

For those who need to put their hands on their money in a hurry and convert mutual fund shares to cash, another benefit of mutual funds is liquidity. A phone call allows you to sell your shares in the fund at its current Net Asset Value (NAV, or posted rate per share), and you should have your money in three or four business days.

The risk of investing in a mutual fund is less than that of a single stock because the fund is managed professionally and because of diversification. Mutual funds offer you diversification without making you do all of the work. Funds can hold anywhere from a few select stocks to more than one hundred stocks, bonds, and money market instruments. While some funds own as few as twenty or twenty-five stocks, others like the Schwab1000 own one thousand stocks.

The diversity minimizes much of your risk. If, for example, you bought one stock on your own it could go either way. However, if you bought six stocks, it would be less likely that all six would go down. If three went down and three went up you would be even. If you saw two dropping, you could sell them and buy something else, while you were still earning money off the others. The mutual funds work on the same “safety in numbers” principle. Although there are funds with higher and lower risks, the comfort of many mutual funds is that they limit risk by balancing higher-risk investments with lower-risk/safer investments. Diversity acts to your advantage as it protects you against greater swings in the market, be it the stock or bond market.

Further diversification can also come from buying more than one fund. You can also allocate your assets into different types of funds. If you buy into a few funds in different categories, you’ll have that much more diversification and that much less technical risk. (It’s usually not advisable to have more than six or seven mutual funds at a given time or you can start to counterbalance your efforts to construct a strong portfolio.) Your portfolio might include, for example:

-- A more conservative bond fund
-- A “tech” fund to cash in on a hot industry
-- A more high-risk international fund
-- A low-risk, blue-chip fund
-- A growth fund

The idea is to balance your portfolio between more- and less-conservative—or higher- and lower-risk investments. Depending on your needs, you will diversify. One investor will have 10 percent in bond funds, 20 percent in growth, 30 percent in tech, and so on, while another will have 5 percent in tech and 40 percent in blue-chip. That’s why there is no boilerplate investment strategy.

It seems odd to need to diversify your mutual funds since the job of the fund is to diversify the stocks, but it’s all part of building a solid investment portfolio. Your mutual fund is the sum of many parts. Therefore, you may want another fund in your portfolio. Another significant reason for diversifying your mutual fund investments is to spread your assets out across sectors, industries, and asset classes. A fund manager, no matter how skilled, is limited by the goals and the direction set forth by the fund.