Mutual Funds

Mutual Funds
Stock or Mutual Funds... You Decide
Mutual Funds
by Hector Jayat
Brought to you by Finance Tips
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Mutual Funds
Going global through mutual funds
There are more than 13500 different publicly traded companies in the world
today, and there are over 700 more companies expected to go public within a
year. In addition, every major developed country offers investors various bonds
to invest in. All of this makes for a lot of different investments and plenty of
choice. Investors can take advantage of this choice through a good global
balanced fund that invests in bonds and stocks or a global equity fund that
invests in stocks all around the world.
A global equity fund invests in stock markets around the world. These funds
will have a portion of their investments invested in North America. Europe,
and Asia. Some of these funds will own hundreds of securities in order to
participate in the growth prospects of many firms while diversifying the risk
associated with investing in different companies. A good global equity fund
will be a foundation for a well-diversified mutual fund portfolio for almost any
investor. Investors could consider including the AGF International Value Fund,
the BPI Global Equity Fund, or the Fidelity International Portfolio Fund in
their portfolios.
A global balanced fund is a fund that invests in both stock and bond markets
around the world. These funds will also always have a portion of their
investments invested in stock and bond markets located in North America,
Europe, and Asia. They are more conservative than global equity funds
because they invest in a combination of stocks and bonds, which affect the
fund's performance. Over the long term these funds will provide a lower rate of
return for investors but they will also exhibit a lot less risk than a global equity
fund. They exhibit less risk because bonds are less volatile than stocks; they do
not decline in value to the same magnitude or at the same time as global equity
funds. A conservative investor should find a good global balanced fund that
will serve as a good foundation for a diversified portfolio.
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Mutual Funds
Mutual Fund Expenses
An informed investor knows where his money is going. For an investor in
mutual funds, it is essential to understand the expenses of mutual funds. These
expenses directly influence the returns and cannot be neglected.
The expenses of mutual funds are met from the capital invested in them. The
ratio of the expenses associated with the operation of the mutual fund to the
total assets of the fund is known as the “expense ratio.” It can vary from as low
as 0.25% to 1.5%. In some actively managed funds it may be even 2%. The
expense ratio is dependant on one more ratio – “the turnover ratio”.
“The turnover rate” or the turnover ratio of a fund is the percentage of the
fund’s portfolio that changes annually. A fund that buys and sells stocks more
frequently obviously has higher expenses and thus a higher expense ratio.
The mutual fund expenses have three components:
The Investment Advisory Fee or The Management Fee: This is the money
that goes to pay the salaries of the fund managers and other employees of the
mutual funds.
Administrative Costs: Administrative costs are the costs associated with the
daily activities of the fund. These include stationery costs, costs of maintaining
customer help lines and so on.
12b-1 Distribution Fee: The 12b-1 fee is the cost associated with the
advertising, marketing and distribution of the mutual fund. This fee is just an
additional cost which brings no actual benefit to the investor. It is advisable
that an investor avoids funds with high 12b-1 fees.
The law in US puts a limit of 1% of assets as the limit for 12b-1 fees. Also not
more than 0.25% of the assets can be paid to brokers as 12b-1 fees.
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Mutual Funds
It is important for the investor to watch the expense ratio of the funds that he
has invested in. The expense ratio indicates the amount of money that the fund
withdraws from the funds assets every year to meet its expenses. More the
expenses of the fund, lower will be the returns to the investor.
However it is also essential to keep the performance of the funds in mind too.
A fund may have higher expense ratio, but a better performance can more than
compensate higher expenses. For example, a fund having expense ratio 2% and
giving 15% returns is better than a fund having 0.5% expense ratio and giving
5% return.
Investors should note: It is not sensible to compare returns of funds in different
risk classes. Returns of different classes of funds are dependant on the risks
that the fund takes to achieve those returns. An equity fund always carries a
greater risk than a debt fund. Similarly an index fund that invests only in
relatively stable and thus less risky index stocks, cannot be compared with a
fund that invests in small companies whose stocks are volatile and carry greater
risk.
Avoiding funds with high expense ratio is a good idea for the new investor.
The past performance of a fund may or may not be repeated, but expenses
usually do not vary much and will certainly reduce returns in future too.
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Mutual Funds
Stocks Or Mutual Funds?
If you happen to have some money left over at the end of all the bill payments
and you have no need for anymore toys, or even if you are beginning a prudent
and fiscally responsible gamble on some wealth that incorporates investment
opportunities, you may find yourself wondering whether investing in stocks or
purchasing mutual funds will offer the best returns. You might also consider
this question when considering how to set up a retirement fund.
In order to help make the decision, it is important to understand what stocks
and mutual funds are.
Stocks: Most people believe they have a basic understanding of what stocks
are, simply because of their exposure to the term in every day usages. Stocks
are individual bits of companies that are available to be purchased by the
public in open trading on the stock exchange. Stocks are often sold in bundles,
and thus to purchase a stock in a specific company often entails some kind of
minimum purchase. Stockholders have a vested interest in the company’s
well-being, as the price of their stocks are directly related to a company’s
performance. Stocks are divided according to the kind of business they
represent, which is known as a sector.
Mutual Funds: Mutual funds are collective investments that pools the money
from a lot of investors and puts the money in stocks, bonds, and other
investments. Mutual funds are usually managed by a certified professional, as
opposed to the individual management of stocks. In essence, mutual funds
incorporate many different types of stocks.
The question of whether or not to invest in stocks or mutual funds will
primarily come down to the personal expertise and wealth of the individual.
Many people will be tempted by the “game” aspect of buying stock, as well as
the chance to invest singularly in a company that is well-known or can be
easily researched. The fact is, however, that by the time stocks become
available on the market they are generally already highly priced, and investing
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Mutual Funds
in individual stocks is a highly risky maneuver as your entire process hangs on
the well-being of just one company. Even wealthy investors diversify their
portfolios by investing in several different types of stock, and this can simply
be unaffordable for the average person.
The better bet for the beginning investor is to purchase mutual funds. Mutual
funds will pool the costs of many different stocks, lessening the risk of losing
your money and raising the chances of gain. Mutual funds may not provide
quite the excitement of investing in a lucky stock, but they are good
investments for a long-term financial opportunity. In addition, mutual funds are
managed by professionals that are well acquainted with the pitfalls and
opportunities of the investment sector, which will cut down on both risk and
the time it would take to pick individual stocks through research and
appointments. Mutual funds will also distribute the risks among several
investors, and it is all managed by someone who likely has contacts within the
financial world.
For the individual with some extra money, who does not have the time or the
expertise to properly “play” the stock market, mutual funds will prove the
better option.
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Mutual Funds
Mutual Fund As Your Alternative Investment Portfolio
People always say that investment is a money game with the playing rule of
"high risk with high return and low risk with low risk". You may want to invest
in an investment portfolio that is able to give a good return and stock market is
always the best choice in term of high return. But you aware that investment in
the stock market will cause you to lose all your money as well, because the
game rule said "high risk is high return and low risk comes with low return".
Hence, stock game might not suit your risk profile; you may want to look for
an alternative that can give comparatively good reward but with much lower
risk than stock. If you are categorized in this group, then mutual fund can be
your game.
Mutual Fund Is A Risk Sharing Game
A mutual fund is simply a financial medium that allow a group of investors to
pool their money together with a predetermined investment objective. The
pooled money will manage by a fund manager. The fund manager is a person
who is widely expert in stock and bond markets. He/she is responsible to invest
the pooled money into specific securities, usually stocks and bonds. When you
are buying shares of mutual fund, you will become one of the fund's
shareholders. All the gains and losses will be shared among the fund's
shareholders. Hence, mutual fund is a risk sharing game.
Compare to stocks and bonds, mutual funds are one of the cost effective and an
easy playing game. You do not need to really expert in stock and bond market
because the fund manager will take care of it; and you do not need to crack
your head to figure out which stocks or bonds to buy, because you have the
expert, the fund manager to make the decision for you.
You do not need a lot of money to get your start the game; you decide the
amount of money you plan to invest into the mutual fund. Some mutual funds
may even let you start with just $100. The best part is the cost effectiveness.
By pooling money together in a mutual fund, investors can purchase stocks or
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Mutual Funds
bonds with much lower trading cost. The biggest advantage of mutual funds as
compare to stocks or bonds is "diversification".
Diversification Will Lower The Risk
Investment experts always advise that if you want to invest you money, "Don't
put all your eggs into the same basket; else if the basket fall, all you eggs will
break", some will happen on your money, if you invest in one stock, if the
stock perform negative, you loss all you money. Diversify your investment to
spread out your money into many different types of investments. When one
investment is down, another might perform in up trend.
Hence, with the diversification of your investment, you will reduce your risk
tremendously.
You can diversify your investment by purchasing different kinds of stocks and
bonds instead of one. But it may take weeks to buy all these investments. In
contrary, you can get these done by purchasing a few mutual funds and mutual
funds automatically diversify your investment across many stocks and bonds.
In Summary
Mutual fund is a risk sharing investment portfolio, it's provides you a medium
of investing your money into a high earning stock & bond market while
automatically diversify your investment to reduce your risk. Hence mutual
fund can be your alternative of investment portfolio that will give you higher
reward and lower risk.
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Mutual Funds
Market timing with your mutual funds
When investing in bonds, stocks, or mutual funds, investors have the
opportunity to increase their rate of return by timing the market - investing
when stock markets go up and selling before they decline. A good investor can
either time the market prudently, select a good investment, or employ a
combination of both to increase his or her rate of return. However, any attempt
to increase your rate of return by timing the market entails higher risk.
Investors who actively try to time the market should realize that sometimes the
unexpected does happen and they could lose money or forgo an excellent
return.
Timing the market is difficult. To be successful, you have to make two
investment decisions correctly: one to sell and one to buy. If you get either
wrong in the short term you are out of luck. In addition, investors should
realize that:
1. Stock markets go up more often than they go down.
2. When stock markets decline they tend to decline very quickly. That is,
short-term losses are more severe than short-term gains.
3. The bulk of the gains posted by the stock market are posted in a very short
time. In short, if you miss one or two good days in the stock market you will
forgo the bulk of the gains.
Not many investors are good timers. "The Portable Pension Fiduciary," by
John H. Ilkiw, noted the results of a comprehensive study of institutional
investors, such as mutual fund and pension fund managers. The study
concluded that the median money manager added some value by selecting
investments that outperform the market. The best money managers added more
than 2 percent per year due to stock selection. However the median money
manager lost value by timing the market. Thus, investors should realize that
marketing timing can add value but that there are better strategies that increase
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Mutual Funds
returns over the long term, incur less risk, and have a higher probability of
success.
One of the reasons why it is so difficult to time correctly is due to the difficulty
of removing emotion from your investment decision. Investors who invest on
emotion tend to overreact: they invest when prices are high and sell when
prices are low. Professional money managers, who can remove emotion from
their investment decisions, can add value by timing their investments correctly,
but the bulk of their excess rates of return are still generated through security
selection and other investment strategies. Investors who want to increase their
rate of return through market timing should consider a good Tactical Asset
Allocation fund. These funds aim to add value by changing the investment mix
between cash, bonds, and stocks following strict protocols and models, rather
than emotion-based market timing.
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Mutual Funds
Why You Should Buy No-Load Funds!
Load is defined as the fee or the commission that an investor pays to a mutual
fund at the time of purchasing or redeeming the shares of the mutual fund.
If the commission is charged when the investor buys the shares, it is known as
a front-end load. On the other hand if the commission is charged when the
investors redeems his shares, it is known as a back-end load.
Certain funds apply back-end loads only if the shares are redeemed within a
specific time period after being bought.
The argument for applying loads on mutual fund transactions is that these loads
will discourage investors from trading frequently in mutual funds. If the
investors quickly move in and out of mutual funds, the funds have to maintain
a high cash position to meet these redemptions, which in turn decreases the
returns of the funds.
Also frequent trading means the expenses of the mutual funds go up.
There are various arguments against load funds:
-The fees that the mutual funds collect as loads are passed on to the fund
brokers. The loads do not provide any incentive for the fund manager for better
performance of the funds. In other words, a load fund has no reason why its
managers should perform better than those of no-load funds.
-In the last few decades, no difference has been seen in the returns of load and
no-load funds (if the loads are not considered.) When the loads are considered,
the investors of load funds have actually gained less than the investors of
no-load funds.
-When a sales person knows that he is going to get a commission from a load
fund, he tends to push the load fund more - even when the load funds are
performing poorly as compared to no-load funds.
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Mutual Funds
-Loads are understated by mutual funds. If an investor invests $1000 in a fund
with 5% front-end load, the actual investment is only $950. Thus his actual
load is $50 in $950 investment - a 5.26% load.
If an investor is already invested in a load fund, it doesn’t make sense to exit
now. The load has already been paid for. The hold or sell decision should now
only be based on what the investor thinks about the future performance of the
fund. In a few funds, the exit load depends on the period for which the fund
was held. Check the details of the fund prospectus for more information.
In most cases it is better to avoid load funds; however, investors should keep
one thing in mind. Sometimes load funds can be a better choice than no-load
funds. For example, an investor has a choice of two classes in a fund - class A
and class B. Class A has 3% front-end load and Class B has no load. The
investor however misses the fine print, which states that Class B has 1% 12b-1
annual fees.
If the fund will make 10% gains each year, its return in Class A (starting with
actual amount invested $970) will be
($970) X (1.10) X (1.10) X (1.10) X (1.10) X (1.10) = $1562
For Class B, the returns will be
($1000) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X
(0.99) X (1.10) X (0.99) = $1532.
Thus the above example is an exception, where in the long run, the load fund
will perform better than the no-load fund (with 12b-1 fees).
The fact is that a no-load fund cannot be considered a true no-load fund, if it
charges fees from it's investors in the form of 12b-1 and other fees.
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Mutual Funds
How to select a mutual fund
One of the most common ways of selecting a mutual fund is to invest with the
crowd in today's hot funds. Unfortunately, jumping from one winning fund to
another is a recipe for disaster. The mutual funds that the crowd follows
typically have had a hot recent performance and tend to gather all the new
mutual fund sales.
Investors as a whole are primarily allocating their new investments to a small
number of mutual funds and to a smaller number of mutual fund companies.
Investors have invested over $400 billion in the 2843 different mutual funds,
but one-third of those assets are invested in only 50 of those funds and one-half
of those assets are invested in the largest 100 funds.
There are benefits to following the market leaders. Larger mutual fund
companies and larger funds have the ability to reduce costs and attract the best
professional money managers. However, the biggest limitation is that today's
better-selling mutual fund may not be tomorrow's winner. This is true for any
mutual fund but it seems to plague the best seller, and the one that garners the
most attention, the most often.
So buying the equity fund that was yesterday's best-seller isn't a strategy that
produces excellent returns. You do not have to go fully in the opposite
direction and ignore these hot funds, but you should understand their
limitations and strengths. They became best-selling funds because they have
merit, but you have to access that merit within your own well-diversified
portfolio, and not the crowd's current investment trend.
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Mutual Funds
How To Pick A Profitable Mutual Fund
We have all heard the advantages of investing in a mutual fund over trying to
pick individual stocks. First of all mutual funds hire professional analysts that
are market experts and devout many hours of study to the various stocks.
Unless you want to devout a large portion of your free time to the study of the
financial reports, you probably won’t have as much information to make a
decision as a mutual fund manager.
Then there is the well documented advantage of diversification. Risk is reduced
by holding several non correlated investments. Put simply, some go up, some
go down and combined, the return levels off the fluctuations, or risk.
Finally, a mutual fund offers smaller investors a chance to invest in small
increments rather than having to save a large chunk of cash to purchase 100
shares of stock.
Given the above advantages, it’s no wonder that mutual funds have become a
very popular form of investing. Now there are thousands of mutual funds to
choose from, so how does one make a selection? Here are a few tips:
1. Do not be seduced to jump on the recently performing best fund. It may
seem like the safe and rational thing to do, but like individual stocks, you want
to buy low and sell high, not buy high and pray for more growth.
2. Even good funds may not be able to overcome the force of the overall
market. You should be looking for funds that can exceed the broad market
without increasing risk. Each fund has certain risk parameters that it is required
to follow. Read the prospectus closely to understand what these are.
3. Limit the number of funds that you own. Unless you are trying to simply
achieve the same returns as the broad market, diversifying into many mutual
funds will not reduce your risk or increase your return by much.
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Mutual Funds
4. Funds that become too popular and too big tend to slip in performance.
There are several reasons for this.
Find more valuable mutual fund resources at www.best-mutual-fund.info
One final point to keep in mind is that the type of fund will totally depend on
your investment objectives. There are certain funds that are designed for your
objectives be they retirement, income, growth, funding the kids college, etc.
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Mutual Funds
How to Avoid a bad Mutual Fund
We have all heard the advantages of investing in a mutual fund over trying to
pick individual stocks. First of all mutual funds hire professional analysts that
are market experts and devout many hours of study to the various stocks.
Unless you want to devout a large portion of your free time to the study of the
financial reports, you probably won't have as much information to make a
decision as a mutual fund manager.
Then there is the well documented advantage of diversification. Risk is reduced
by holding several non correlated investments. Put simply, some go up, some
go down and combined, the return levels off the fluctuations, or risk.
Finally, a mutual fund offers smaller investors a chance to invest in small
increments rather than having to save a large chunk of cash to purchase 100
shares of stock.
Given the above advantages, it's no wonder that mutual funds have become a
very popular form of investing. Now there are thousands of mutual funds to
choose from, so how does one make a selection? Here are a few tips:
1. Do not be seduced to jump on the recently performing best fund. It may
seem like the safe and rational thing to do, but like individual stocks, you want
to buy low and sell high, not buy high and pray for more growth.
2. Even good funds may not be able to overcome the force of the overall
market. You should be looking for funds that can exceed the broad market
without increasing risk. Each fund has certain risk parameters that it is required
to follow. Read the prospectus closely to understand what these are.
3. Limit the number of funds that you own. Unless you are trying to simply
achieve the same returns as the broad market, diversifying into many mutual
funds will not reduce your risk or increase your return by much.
4. Funds that become too popular and too big tend to slip in performance.
There are several reasons for this.
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Mutual Funds
Find more valuable mutual fund resources at www.best-mutual-fund.info
One final point to keep in mind is that the type of fund will totally depend on
your investment objectives. There are certain funds that are designed for your
objectives be they retirement, income, growth, funding the kids college, etc.
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Mutual Funds
Need Some Mutual Fund Info?
Mutual fund info is one of the most sought after things on the market when it
comes to investing. People are considering this fun option for many reasons.
First, what is a mutual fund? It is a way of allowing many investors to pool
their money together and to allow a professional investment manager to
manage the money in the larger sum. Because more is invested as the group,
more money can be made in this situation. But, who, what, where and when are
all questions that many people are asking as well. Mutual fund info is right
around the corner though.
To have the right mutual fund info, you need to do several things. First, you
need a personal knowledge, at least somewhat so that you know what is
happening and what could happen with your investment. Knowing what is
happening will give you an edge, so to speak. Secondly, you need to find a
trustworthy investment manager to use for your mutual fund needs. Many of
these funds can be found through your financial advisor. To find a manager of
your money, it is wise to compare several companies including their history of
management, their fees, and the means in which they will communicate with
you.
That said, it is still wise to keep an eye on your personal investment at all
times. Nevertheless, there are excellent companies out there that will
successfully manage your investments, no matter how large or small to your
specific needs. It is wise to take the time to find just the right company. Mutual
fund info can be found updated continuously right here on the web.
There are also many information portals now devoted to the subject and we
recommend reading about it at one of these. Try googling for “mutual fund”
and you will be surprised by the abundance of information on the subject.
Alternatively you may try looking on Yahoo, MSN or even a decent directory
site, all are good sources of this information.
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Mutual Funds
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Mutual Funds

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