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Mutual Fund Advantages
Choose a mutual fund that will make you lots of money in the coming years and start investing right now.
History of Mutual
Mutual funds are not an American invention. The first
was started in the Netherlands in 1822, and the second
in Scotland in the 1880's.
Net Asset Value (NAV)
When you invest in a mutual fund, you purchase shares in
the fund at the share price (the NAV or net asset value)
at the close of that day.
As you buy additional blocks of shares, $50 or $100 at a
time, you are taking advantage of what is known as
"dollar cost averaging".
About Choosing a Fund
Even though mutual funds are professionally managed,
there is still a lot of risk by choosing a fund solely
on the record of its past performance, or how well it is
doing this year.
Mutual Fund Ratings
Since 1985, a company named Morningstar has provided
investors with its rating system, assigning one to five
stars to funds. You will see these stars in all the
mutual fund ads.
Evaluating Mutual Fund
All investments have some degree of risk. But how do you
judge the risk of a mutual fund?
Mutual Fund Share
As you become familiar with mutual funds and their
prospectuses, there is constant reference to "A" shares,
"B" shares etc.
Mutual Fund Fees
Mutual funds don’t deduct expenses directly from your
account. Instead, they take a set percentage (disclosed
in the prospectus) to pay for monthly expenses such as
rent, salaries, etc., and profit.
The Mutual Fund
Every mutual fund publishes a booklet that tells
everything you need to know about it. This is called a
prospectus, and is supposed to be read before your money
is accepted by the fund company.
How important is the
manager's length of experience?
From 1991 to 2000, managers with 10 or more years at the
same fund averaged 14.3% per year after all expenses.
Those with less than 10 years averaged 12.9%.
Why is the
prospectus hard to understand?
When you read the prospectus, you will see lots of
gibberish. Find our what to look for while researching a fund.
Mutual Fund Annual
Many mutual fund investors fail to read or understand
the annual report that funds publish and mail to them
each year. Here are some of the basic things to examine.
Fund to the Competition
Learn to compare your mutual fund investment to other mutual funds available in different markets.
Comparing funds on an
Why is this important? Unless your fund is held in a
tax-free or tax-deferred account, the funds turnover
(percent of its investment holdings that it changes
during the year) can cost you a lot of money.
Average Return on
People tend to focus on a fund's historical average and
therefore believe that this is the number they can
expect every year. But hey, this is an AVERAGE.
How Not to Pick a Mutual
Avoid making the same investing mistakes many beginners tend to make.
Cashing in Your Fund
One of the hardest things to resist is the temptation to
give up on your mutual fund because of a poor year, or
even a few bad months.
When to Sell Your
There can be good reasons to sell your fund. Find a list of reason for that could warrent selling your fund.
and Asset Allocation
Ask any financial planner about mutual fund investing
and they will give you a lesson on asset allocation. They will
advise you to put part of your money in a good bond
fund, part in a money market fund that invests in U.S.
treasuries, and the remainder in a stock market index
When To Start
a Mutual Fund
Getting started now, not "tomorrow" is crucial.
Hesitation will cost you a lot of money.
Types of Mutual
There many kinds of stock funds, bond funds, and money
market funds. Get an expert description of the different types of funds available.
Value Stock Funds
Most stock market experts would define a value stock as
one that is priced too low when you compare its earnings
and book value, per share, to other companies in the
Growth Stock Funds
Stocks from companies that may seem over-priced can be
great "values" if the company is growing by leaps and
bounds. But this kind of value is called a growth stock.
Small and Micro-Cap
Companies whose stock value is under $100 million are
usually referred to as micro-cap, and called small-cap
if the total value of their stock is between $100
million and $1 billion.
Mid-cap companies often share the positive features of
larger companies: established products and services,
solid management, and long-term operating histories.
Large Cap Companies
These are the companies, most belonging to the S&P 500,
whose market capitalization is over $10 billion. Many
are old, established companies such as IBM, Ford Motor,
and Proctor and Gamble.
Income Stock Funds
This is a category that represents companies that pay a
high, regular dividend.
Index Mutual Fund
An index mutual fund is one whose goal is to match the
target index as closely as possible, whether it is the
S&P 500, Russell 2000, Barra Mid-Cap Value, etc.
Enhanced Index Funds
These funds juice up the S&P 500 index by weeding out
laggard stocks while adding faster growing ones.
Sector Mutual Funds
So far we've looked at broad categories. Stocks can also
be divided into the industry type “sector funds”.
Stock Market Sectors
Discover a comprehensive list of major stock market sections or industries.
Another group of stocks are called Defensive and are
mostly part of the consumer non-cyclical group. These
are companies that make things that are immune to the
ups and downs of the economy, such as tobacco, soap,
drugs, diapers, food and beverages.
These are mutual funds that invest in companies from
around the world. Technically, if the fund is a "global"
or "world" fund, then it invests in a combination of
foreign and U.S. companies.
These funds invest in real estate investment trusts (reits)
that trade on the NYSE. A reit invests in real estate,
mortgages, or both.
Socially Responsible Funds
Invest only in companies who are good for the
environment. They also avoid tobacco, alcohol, and
Balanced funds invest part of their money in stocks and
part in bonds and U.S. treasuries.
If your investments are in a tax-advantaged account such
as an IRA or 401k, you want maximum return without any
consideration for tax-impact.
Invest in bonds and preferred stocks that are
convertible into common shares at a set conversion ratio
within a given amount of time.
Junk Bond Funds
You can look all you want for a mutual fund with “junk
bond” in the fund’s name, but you won’t find it. That
term is a nickname for bonds issued by companies with
poor credit ratings.
Mixtures of Stock
Besides the types of funds discussed so far, there are
many other combinations of stocks. Truly something for
every kind of investor.
Closed End Funds
Closed-end funds have an initially set number of shares, which are then traded like stocks on the NYSE.
Traded on the American Stock Exchange, ETF’s are
“baskets” of stocks representing a stock market index.
They trade exactly like a regular stock.
There are services such as Sharebuilder that let you
create your own mutual fund, picking your own basket of
stocks, for what appears to be only a small fee. But can
you choose what will be the long term winners better
than a seasoned mutual fund manager?
Fund names - What They
Really Invest In
This is probably a good time to alert you to the vast
leeway that fund management is allowed, in choosing how
your money is invested.
How to Get Started
Learn what you can start doing today with mutual fund investing.
Where Can I Start
Investing with No Money?
This sounds a little hard to believe, but yes, there are
two mutual fund companies that will let you sign up with
no money to start, $0.00!
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