Have you ever wondered as an investor, “which is the safest mutual fund to invest in?”
Far from the perception that many don’t, most investors and even those who end up buying Aggressive Growth Funds have considered Large Cap Mutual Funds as a safe bet before deciding they’re more of the risk loving folks.
What’s so safe about Large Cap Mutual Funds? If you take a look at the global corporate history, you will see that the large cap stocks, also known as Blue Chip stocks are by and far the most consistently high performers in the market, even when you average them across decades of performance data.
But what is the cap? Cap is the acronym for Market Capitalization, which is the premium you or your Large Cap Mutual Fund pays to buy a particular stock - the difference between the Par Value of the stock and it’s Market Price.
You may sometimes notice that while the Ford Inc stock today trades at around $13.75, the par value is $0.01 which means that the Large Cap Mutual Fund you are investing in, is paying close to $13.74 extra for owning 1 unit of Ford Motor Corporation’s share capital.
With a market capitalization of over $47 billion, Ford is one of the large Cap stocks that finds an entry in the portfolio of arguably every single Large Cap Mutual Fund there is in existence and because the stock has consistently performed and is expected to regularly outperform the market expectations.
This consistency in performance builds investor-trust thereby enhancing the goodwill of the company, which in turn translates into a high market value for a $0.01 par value share.
So why invest in a Large Cap Mutual Fund when you can buy Large Cap Stocks? This question is best answered by looking at this example.
Microsoft - has a par value of $0.00000625 per share and trades at around $24.68. Google has a par value of 0.01 and trades at around $540 a share and we’ve seen Ford as well. So what would you get for $1000 if you’re looking at an equal spread? Not a meaningful stock spread. This is where a $10 per unit (hypothetically speaking) of a Large Cap Mutual Fund makes a lot of sense investing in
To sum up, what’s great about investing in a Large Cap Mutual Fund? Growth - consistent growth although you may not find the kind of high yield an Aggressive Growth Mutual Fund might have to offer. This is the reason the average investor must have a spread in his or her portfolio that includes either large cap stocks or Large Cap Mutual Funds.