A lot of people start to jump into the mutual fund investment game. While mutual funds have shown themselves over time to be a safer bet than regular stock trading, But there is always the chance you could lose in your investment. But the type of fund you choose will have a lot to do with the amount of risk you take on and the kind of return you’re looking for. For starters, mutual funds are usually broken down into six main categories.
1) Equity mutual funds allow you to invest in typical shares of common, everyday stock.
2) Fixed income mutual funds allow you to invest in corporate or government securities that usually offer a set rate of return on your investment.
3) Balanced mutual funds allow the investor to take on a fund that includes both stock and bond options.
As far I know the safest form of mutual funds are known as money market mutual funds. They offer a high degree of stability for your principal, as well as high liquidity if you need to back out.
Bond mutual funds are popular since they invest in tax free as well as taxable ones.
And finally, sector funds are used to help diversify your holdings within a particular industry.
Each of these types of funds can be both aggressive and risky with a high level of reward possible, or they can be safer and lower risk. It all depends on which fund you choose.
To break things down further, equity funds are usually divided up into four different categories: Growth and Income mutual funds, International mutual funds, growth mutual funds and aggressive growth mutual funds. Each different type of fund has a particular goal in mind. For some, it’s to aggressively pursue income, even in risky situations, while others seek to preserve the initial investment and only take smaller chances.
As we can see, the mutual fund landscape is filled with so many options, it can make a green horn head spin. But fear not, there is almost limitless information available on which mutual fund is right for your particular investment strategy. Not only do most mutual funds and those that run them have their own website, there is endless advice as to which fund is right for you on the Internet, as well. Don’t forget to utilize publications like the Wall Street Journal, as well as friends and family who might have had particular luck with a specific fund. Welcome to mutual fund investing!
Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
Saturday, January 10, 2009
Friday, January 2, 2009
Criticism about mutual funds
Mutual fund investing has exploded over the past 50 years to become one of the most popular forms of investing anywhere, there are still possible pitfalls that you can fall into if you’re not careful. Investing is still a risky business, even if everyone is doing it. Here are some tips to help you through any problems you might have.
One common criticism about mutual fund investing is that they don’t have a high enough return on their investment and that index funds, which aren’t as popular have historically returned a higher investment than the much more popular actively managed mutual funds.
Second common problem that some have with mutual fund investing is the use of load funds. You have probably seen the phrase “no-load mutual fund” in the newspaper or on television. The reason the no-load type of fund is preferred is because load funds come loaded with fees. These fees can run anywhere between half a percent, all the way up to 8.5 percent of however much you chose to invest. It’s thought that these fees are a clear conflict of interest as they clearly benefit the people making the sale and hurt the person making the investment. Load mutual funds are also thought to make your broker recommend funds that will maximize his fee, and not your investment portfolio.
Some investors also point to a perceived conflict of interest in regards to the size of the mutual fund. Most companies that manage the mutual fund charge a fee of between half a percent up to two and a half percent of the total amount of the funds assets. It’s thought that this fee could cause a fund to spend more on advertising than is actually needed so that they can get more people to invest in the fund and maximize their fee as much as possible.
The mutual fund market isn’t immune to scandals, either. In 2003, a scandal involving the practice of unethical and dishonest trading practices. Many funds were found to have participated in late trading and market trimming, both of which are illegal practices. You obviously don’t want to invest in a mutual fund that is engaged in illegal activities.
Mutual fund investing is gaining in popularity on an almost weekly basis, and a few bad eggs in the business won’t ruin it for everyone. However, it is always good advice to enter into any kind of investing with your eyes open, and if you feel your mutual fund is behaving improperly, there are authorities you can report them to.
One common criticism about mutual fund investing is that they don’t have a high enough return on their investment and that index funds, which aren’t as popular have historically returned a higher investment than the much more popular actively managed mutual funds.
Second common problem that some have with mutual fund investing is the use of load funds. You have probably seen the phrase “no-load mutual fund” in the newspaper or on television. The reason the no-load type of fund is preferred is because load funds come loaded with fees. These fees can run anywhere between half a percent, all the way up to 8.5 percent of however much you chose to invest. It’s thought that these fees are a clear conflict of interest as they clearly benefit the people making the sale and hurt the person making the investment. Load mutual funds are also thought to make your broker recommend funds that will maximize his fee, and not your investment portfolio.
Some investors also point to a perceived conflict of interest in regards to the size of the mutual fund. Most companies that manage the mutual fund charge a fee of between half a percent up to two and a half percent of the total amount of the funds assets. It’s thought that this fee could cause a fund to spend more on advertising than is actually needed so that they can get more people to invest in the fund and maximize their fee as much as possible.
The mutual fund market isn’t immune to scandals, either. In 2003, a scandal involving the practice of unethical and dishonest trading practices. Many funds were found to have participated in late trading and market trimming, both of which are illegal practices. You obviously don’t want to invest in a mutual fund that is engaged in illegal activities.
Mutual fund investing is gaining in popularity on an almost weekly basis, and a few bad eggs in the business won’t ruin it for everyone. However, it is always good advice to enter into any kind of investing with your eyes open, and if you feel your mutual fund is behaving improperly, there are authorities you can report them to.
Sunday, December 28, 2008
College vs. Retirement
Most of us, investing in mutual funds is pretty straight forward. You have specific goals that need to be met. You and your partner are approaching mutual fund investing with your eyes open and you’re both on the same page. Granted, she may want that pretty house down by the lake and you want that new car, but both your goals involve water, and that’s close enough for you. But what if you’re in a completely different boat? What if you know you need to invest, but you have two equally important goals pulling you two different ways? This is the case with thousands of parents who see the need to save for retirement but also want to save for the kids’ college education. How can you do both at the same time? Here are a few tips.
One of the biggest factors in the college vs. retirement battle is the fact that people are putting off having kids until later in life these days. Fifty years ago, this wasn’t the case, and saving for both college and retirement usually happened during two distinctly different phases in one’s life. These days, now that we realize that saving for retirement is something that should be started when you’re 18, not 48, the two overlap more than ever.
The gut instinct of most parents is to put the kids’ future ahead of their own and cut back on retirement savings in favour of college. While this is a popular choice, it really only should be a last resort. A technique that is becoming more and more popular with parents who face saving for both at once is offering your prospective college student the chance to get matching funds from you. This is simply the idea that for every dollar they pay for, you’ll match it. If your not sure how junior will pay for half, remember, there are many ways for teenagers to save for college themselves. Almost everyone qualifies for student loans, there are scholarships for good grades as well as an after school and summertime job. Most college students work while they are attending classes, as well.
One of the biggest factors in the college vs. retirement battle is the fact that people are putting off having kids until later in life these days. Fifty years ago, this wasn’t the case, and saving for both college and retirement usually happened during two distinctly different phases in one’s life. These days, now that we realize that saving for retirement is something that should be started when you’re 18, not 48, the two overlap more than ever.
The gut instinct of most parents is to put the kids’ future ahead of their own and cut back on retirement savings in favour of college. While this is a popular choice, it really only should be a last resort. A technique that is becoming more and more popular with parents who face saving for both at once is offering your prospective college student the chance to get matching funds from you. This is simply the idea that for every dollar they pay for, you’ll match it. If your not sure how junior will pay for half, remember, there are many ways for teenagers to save for college themselves. Almost everyone qualifies for student loans, there are scholarships for good grades as well as an after school and summertime job. Most college students work while they are attending classes, as well.
Monday, December 1, 2008
Day Trading
With the technology boom that has changed the way business is done across the globe, one unintended result has been the rise of day trading. Day trading is a risky and stressful form of trading that involved buying stock and selling it within one days time. It’s thought that if this is done enough time, with the right foresight and financial advice, that a person can make quite a lot of money each day. Day trading wasn’t even an option before the 1990’s. Here’s why.
Back before the computer age allowed instant stock buying and selling, the financial settlement period use to take much, much longer. It was possible to buy a stock, and not have to pay for it for another 10 business days. It was common practice in those days to try to sell the stock for more than it was worth before you had to pay for it in an attempt to make a profit. Many traders who had no actual money of their own would make their livings this way, and it’s obvious how dangerous this was.
A day trader has many different strategic options that he or she can follow to try to make a profit. The first is trend following. This is a tool that is used by all investors and its simply the idea that stocks that have been going up will continue to go up and stocks that have been going down will continue to go down. Obviously, this isn’t always the case, which makes trend following a dangerous method to base all of your day trading investments on.
Range trading is another tool used by day traders. This is the practice of buying and selling stocks once they reach their respective highs and lows. The trader figures that a stock that is headed up will continue to go up, but only until it reaches a new high, and then it’s due to go back down. The same is thought for stocks headed the other way. Once they reach a brand new low, they tend to rebound and head back up.
Playing news is another common tool of the day trader. The technique is exactly what it sounds like, buying stock that has just released good news and selling stock that has just released bad news.
While none of these techniques are guaranteed, day trading is increasing in popularity every year, and while the potential for significant loss is very real, many continue to walk the tightrope that is day trading.
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