Investing Advice

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. This NAV is simply calculated by the total value of the fund's investments and cash on hand, then subtracting any current liabilities and management fees, then dividing by that number by the number of shares.

The NAV is what one share is worth right now. You don't invest in a mutual fund by buying a fixed number of shares but rather by a lump dollar sum such as $1,000. If the fund's NAV is $10.00 and you invest $1,000 (after any sales commission or load) the fund would issue you 100 shares. Since it would be a fluke for the share price to be an exact, even multiple of your investment, you will be issued some partial shares to make up enough to cover your investment to the penny.

There is a common misconception that a fund with a high NAV is doing better than one with a low NAV, but the fundís net asset price has absolutely nothing to do with performance, nor does it make funds easier to buy since people donít buy a number of shares, but instead invest a lump sum of money.

But because the public doesnít understand how to evaluate a fund properly, many funds split their share price when it rises, to make it look like you are getting more for your money. Yes, your money will then buy more shares, but each share has less stock value behind it. Itís like would you rather have four $5 bills, or one $20 bill? It just doesnít matter.

Other Stock Market Basics Topics:

  1. Mutual Fund Advantages
  2. History of Mutual Funds
  3. NAV
  4. Dollar Cost Averaging
  5. General advice about choosing a fund
  6. Mutual Fund Ratings
  7. Evaluating Mutual Fund Investment Risk
  8. Mutual Fund Share Classes
  9. Mutual Fund Fees
  10. The Mutual Fund Prospectus
  11. How important is the manager's length of experience?
  12. Why is the prospectus hard to understand?
  13. Mutual Fund Annual Report
  14. Comparing your fund to the competition
  15. Comparing funds on an after-tax basis
  16. Average Return on Investment
  17. How Not to Pick a Mutual Fund
  18. Cashing in Your Fund
  19. When to Sell Your Fund
  20. Mutual Funds and Asset Allocation
  21. When to get started with a mutual fund
  22. Types of Mutual Funds
  23. Value Stock Funds
  24. Growth Stock Funds
  25. Small and Micro-cap Stocks
  26. Mid Cap
  27. Large Cap Companies
  28. Income Stock Funds
  29. Mutual Fund Index
  30. Enhanced Index Funds
  31. Sector Mutual Funds
  32. Stock Market Sectors
  33. Defensive Stocks
  34. International Funds
  35. Real Estate Mutual Funds
  36. Socially Responsible Funds
  37. Balanced Funds
  38. Tax-Efficient Funds
  39. Bond Convertible Funds
  40. Junk Bond Funds
  41. Mixtures of stock types
  42. Closed End Funds
  43. Exchange Traded Funds (ETFís)
  44. Stock Picking Strategy - Picking your own stocks?
  45. Fund names, and what they really invest in
  46. How to get started
  47. Where can I start investing with no money?

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