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A Guide to Mutual Funds

Jan 23

Posted by admin in Stocks Mutual Funds

If you’ve been thinking about getting into investment but aren’t sure what you should invest in, you might want to consider looking into investments in mutual funds. These funds are designed to provide a diverse investment opportunity for the shareholders who have purchased shares in the fund. They can be used as an easy way to create a diverse investment portfolio, or they can be used to accent your own portfolio with securities that have been chosen by the creator of the mutual fund.

The information below is designed to help you decide whether mutual funds are right for you, and includes more details of what mutual funds are, what sets them apart from other types of investments, and how to find the mutual funds that will best accent your investment style.

Defining Mutual Funds

Before you can decide whether or not to invest in mutual funds, you need to know exactly what mutual funds are. These funds are a type of security that is traded on the stock market, enabling shareholders to purchase and sell shares in the funds as they choose. The money that is raised by the purchasing of shares by shareholders is utilized by the investment company that created the firm to purchase more shares of certain stocks, bonds, and other market securities and money market instruments.

As the value of the stocks, bonds, and other securities contained within the mutual fund rise and fall, the value of the fund itself fluctuates? the average value of each share of the mutual fund is determined each day as an average of the total value of all of the securities that are contained within the fund.

Because of this, shareholders who own part of a mutual fund are more directly involved with their investment than those who simply own individual securities and watch as they rise and fall.

Important Attributes of Mutual Funds

As was mentioned above, mutual funds are created by investment companies to purchase shares in various stocks and other securities. What this means for the mutual fund investor is that in addition to their ownership of shares of the mutual fund, they also have a limited claim of ownership of some of the securities contained within the mutual fund. In addition to this, mutual funds also benefit from having a built in system of diversification, as well as professional money management services that handle all of the money that is invested into the fund.

Shareholders are free to purchase additional shares or sell the shares that they already possess at any time, though the value of the shares fluctuates daily and therefore must be bought or sold with care so as to get the best value for the money.

Finding the Best Mutual Funds

Since the value of mutual funds varies from day to day, it can be difficult to find the funds that are best for your investment. Instead of tracking the funds as you would traditional stocks and securities, it’s often better to investigate the fund to determine which investment company is managing the fund and what specific securities are currently being held by the fund itself.

Finding a mutual fund that is managed by an investment company that has a strong record of choosing lucrative investments is a good sign that the fund might be a smart buy, and securities held within a fund that are consistent performers can help add stability and security to an investment that may seem otherwise unstable.

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Advantages Of Low-Cost Mutual Funds

Oct 1

Posted by admin in Investing, Personal Finance, Stocks Mutual Funds

A common misconception about mutual funds is that pretty much any reputable fund will do. Of course, any investment that produces a solid return for you is better than nothing, but not all funds are created equal. When you buy a mutual fund, you?ll pay a management fee. It?s what you pay for someone to handle your accounts. A low-cost fund will charge you one-fifth of one percent per year. A typical high-cost fund will charge about eight times more than that.

Research was recently published analyzing a 25 year old investing 10 percent of their $30,000 income each year until retirement into mutual funds. Comparing money put high-cost funds with that put into low-cost funds produced quite dramatic results. The good news is that the person investing in the high-cost funds ended up with around $1.7 million at retirement. Not too bad! But here?s the real kicker ? the person investing in a low-cost fund ended up with $2.9 million!

The S

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Avoid

Sep 24

Posted by admin in Stocks Mutual Funds, Taxes

At this time of year, you need to be aware of the ex-dividend date of any mutual funds you plan on purchasing. If you heed this advice, you avoid some nasty tax and investment performance consequences.

To explain why, let me first define ?ex-dividend date?. On the ex-dividend date, all registered owners of a mutual fund become eligible to receive any declared dividends and capital gains distributions. If you do not own the fund by that date, you do not receive the payout. You also want to keep in mind the distribution date. After that date, you can go ahead and buy your shares without the negative impact on the NAV (Net Asset Value).

At this time of year (Oct ? Dec), most mutual funds declare their dividend and capital gains distributions. You have nothing to worry about if you want to buy stock. Such distributions do not impact the share price. However, if you own mutual funds you need to consider the impact of this distribution on the NAV or share value. On the day of the distribution, you will see the NAV of your mutual fund shares drop by the declared dollar amount. In industry parlance, we call this ?buying dividends?.

Here?s how it works. Throughout the year, the cash from dividends paid by stocks within the fund and capital gains realized from the sale of assets either accumulates adding to the fund?s cash balance or gets reinvested in equities by the fund manager. At the end of the year, the fund must distribute at least 95% (?) of the dividends/realized capital gains not reinvested in new securities. Typically, funds declare this distribution in the months of October and November.

At the end of the year, the NAV of the fund reflects the value of all the investments it contains plus the starting cash balance and the accumulated cash resulting from dividends and capital gains. When the fund manger distributes the dividends and capital gains, the NAV drops a corresponding amount. That?s fine for the people who have owned the fund most of the year. They enjoyed the NAV appreciation that resulted from the growth of the investment, the dividends, and the realized capital gains. An investor who buys just before the ex-dividend and distribution dates has purchased cash value. When the fund distributes the cash, the new shareholder sees the value of her fund shared decrease, receives back part of her investment, and then gets to pay taxes on in essence her own money! Not a good deal.

A look at an example will show why you want to avoid buying dividends. Suppose the ex-dividend date is tomorrow and you buy shares at a NAV of $25. The fund declares a dividend of $3.00 per share. Doing so means that tomorrow the fund distributes $3.00 of the NAV so your shares are now worth $22 instead of the original $25. You now owe taxes on $3.00 per share even though you didn?t enjoy the price appreciation you would have had if you had purchased at the beginning of the year.

You can see that you lose in this situation. You should avoid buying dividends. Instead, wait until after the after the distribution date to purchase your shares. Then you will get to enjoy any price appreciate throughout the year and not pay taxes on the return of your own cash!

About the Author:

Catie Fitzgerald is a 10 years veteran of the money management profession and the founder of Financially Savvy. Financially Savvy provides investors with the education and resources necessary to gain confidence in making their own financial decisions. We offer a variety of educational venues including classroom sessions, one-on-one coaching, and online resources. If you have a personal finance question you would like answered, contact Catie at cfitz@financiallysavvy.com.

Writen By : Catie Fitzgerald

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Mutual Fund Categories

Sep 20

Posted by admin in Stocks Mutual Funds

I have recently been contacted by a gentleman who has a large financial Internet web site devoted to mutual funds and he has asked me to act as an editor. He sent me a list of mutual funds and asked me to list them into 53 categories.

\”Gee, Ken, thanks for asking, but I only have two categories.\” He was baffled. \”What about Large Cap, Mid Cap, Small Cap, Sector, Index, Emerging Market, Value, Undervalued, Balanced, Closed End, etc. etc. funds? What about all those Wall Street \”professionals\” who say we should analyze our portfolios and put money into different funds?\”

The answer is very simple. Don\’t listen to those \”experts\”. The only expert is the bottom line.

My two categories are those that PERFORM and those that are NONPERFORMERS. How do I differentiate them? Again, a very simple test. The performers are beating the S

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Mutual Fund Fees: Are You Paying Too Much?

Sep 17

Posted by admin in Investing, Stocks Mutual Funds

If you think mutual fund performance is the whole story, watch out! You could make a very expensive mistake by not considering the costs of a mutual fund! The lower a fund?s costs, the higher percentage of your fund?s real return you receive. You can control what you pay to invest by selecting low cost mutual funds.

Mutual fund costs come in two flavors:

Shareholder Fees
You pay these fees directly out of your own pocket to purchase, redeem, or exchange shares. The following shareholder fees will appear in the ?Fee and Expenses? section of a mutual fund?s prospectus:

  • Sales Charge on Purchases — Also called a ?Load?, this fee is expressed as a percentage of the dollars invested

  • Purchase Fee — Usually replaces the sales charge / load. This fee appears as a flat dollar charge for making a purchase regardless of the investment amount

  • Sales Charge on Reinvested Dividends -? Similar to the ?Load? on purchases, this fee is expressed as a percentage of dollars reinvested

  • Redemption Fee -? Charged at the time of selling shares of the fund. Expressed as a percentage of the dollars invested or a flat dollar amount

  • Account Maintenance Fee -? A flat dollar amount charged if your account value falls under a specified minimum balance

    • Annual Operating Expenses
    These expenses get deducted from the Fund?s assets before the management firm calculates return numbers.

    • Management Fee -? This fee gets paid to the team that makes all the investment decisions. Out of this fee, the fund management pays for trading costs so you won?t see commissions detailed in the expense section of the prospectus.

  • 12b-1 Distribution Fee -? This fee covers the costs of advertising and selling the fund. These fees are ?ongoing?, meaning they never go away for as long as you own the fund. They can have a significant negative impact on the cost of a fund.

  • Other Expenses -? This includes the cost of daily administration of the fund such as issuing annual reports, maintaining office space, etc.

    • How much you should expect to pay depends upon the mutual fund category. Each category has it?s own average annual expense ratio. For instance , it costs more to run an international fund than a domestic. Bond funds cost less to run than equity funds. To find out the category?s average expense ratio, go to Morningstar and view the report for the fund you?re considering purchasing (simply input the fund?s symbol in the ?Quote? box and hit \”enter\”) once the report appears, go to the ?Fees and Expenses?. The category average expense ratio appears in the ?Actual Fees? section on the right.

    All things being equal (i.e., risk, performance, etc.), you want to select mutual funds that have low expense ratios relative to other funds in the same category. You can compare the cost of various funds for free by using Vanguard?s Cost Comparison tool or the Morningstar Fund Compare. If you have a membership at Morningstar, check out the Cost Analyzer found in the Morningstar Tools section (right
    side of the page).

    Financially Savvy provides the information in this article for educational purposes only and it does not constitute investment advice either given or implied. Before making any investments or pursuing any money management technique, always consult your CPA for tax implications and your financial advisor to understand how such changes will impact your long-term plan.

    About the Author:

    Catie Fitzgerald is a 10 years veteran of the money management profession and the founder of http://www.financiallysavvy.com. Financially Savvy provides investors with the education and resources necessary to gain confidence in making their own financial decisions. We offer a variety of educational venues including classroom sessions, one-on-one coaching, and online resources.

    Writen By : Catie Fitzgerald

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    Mutual Funds: The Modern Den Of Thieves!

    Sep 15

    Posted by admin in Stocks Mutual Funds

    Mutual funds were created with the idea that one person can specialize and manage the investments of a large pool of money from multiple investors. Before the great depression mutual funds were called investment pools and mutual fund managers were called pool operators. The bull market of the 1920?s created a time of economic prosperity akin to the 1990s. The conceptualization of the pyramid scheme occurred at this time as well.

    Ironically, the pyramid scheme had been debunked in 1920 when Charles Ponzi was arrested for offering investors unsustainable returns on postal certificates. The investors lost all of their money in Ponzi?s elaborate con job for which his name became synonymous. He was reportedly making a killing buying the postal certificates in Europe at low price and selling them at high prices in the United States. Con jobs in general like the one perpetrated in the movie ?The Sting? with Robert Redford and Paul Newman were labeled ?Ponzi Schemes.? The public never saw through the investment pool concept as a new form of Ponzi scheme.

    Investment pools eventually became thought of as a rip-off in the mind of the public. This is because becoming a pool operator was like having a license to steal. Instead of focusing on the interests of the public who had money in the ?fund? the pool operators would engage in risky investments because the money was not theirs. They would also pay themselves extremely large fees. It became very clear to the public that investment pools were a big-rip off in the aftermath of the stock market crash of 1929.

    There was so much abuse by pool managers that the Security Exchange Commission (SEC) was formed in large part to stop these rip off artists. The SEC effectively shut down the more blatant con jobs. Then the securities industry came up with a fancy new name for investment pools to suck the public back in: ?Mutual Funds!?

    If your 401(k) provider offers an indexed mutual fund then put your money into that. An indexed mutual fund uses a stock market index such as the S

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    The 401(K): How The Insider Has Stolen Your Retirement!

    Sep 15

    Posted by admin in Stocks Mutual Funds

    Mutual funds were moderately successful in creating a presence in the stock market until the advent of the investment retirement account and in particular the 401(k). Corporate insiders persuaded the federal government to allow for the 401(k) in lieu of offering employees the traditional pension. When this happened the employees lost the protection of a specialized financial manager who could manage both the return and the risk of the retirement money of the worker.

    This forced employees who are supposed to specialize in their work area into the field financial management with no training whatsoever. The 401(k) effectively FORCES individuals into mutual funds that as I just mentioned were notorious at the turn of the last century for defrauding the public of its savings. Ironically, these same executives had at the time, and still have, their company department of corporate attorneys. These secret departments do nothing but invent new ways for corporate insiders to suck more money out of the firm in the form of perquisites, stock options, and golden parachutes. This is the ?new? form of executive stewardship over the shareholder value and employee retirement!

    Why is this so tough on the employee? The 401(k) plans do not offer individual stocks only mutual funds. What a scam! Corporate executives have effectively forced you to place your retirement dollars with their cronies in the securities industry who manage these investment pools. If you could talk to someone in the 1920?s about this they would be shocked. Someone from back when these investment pools were actively fleecing the public would see this as a criminal act perpetrated by the US federal government, inside corporate executives, and mutual fund managers.

    Does that mean the 401(k) is a bad deal? That depends. If your employer matches a percentage of your wages it may be a fair deal but you should only contribute only up to the matching limit. After contributing the maximum matching amount to your 401(k) then put the rest in a Roth IRA. If your 401(k) provider offers an indexed mutual fund then put your money into that. An indexed mutual fund uses a stock market index such as the S

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