Mutual Funds to Avoid

Mutual funds are a great way for most investors to invest in stocks, bonds and the money market. Some are better than others, and some should be avoided altogether.

You should not be trying to hit a home run when you invest in funds. Rather, your objective should be to participate in the markets to get overall returns that are higher than you can make at the bank, and more consistent than you could get by playing the stock market or bond market on your own.

To give you some perspective ... historically, over the long term stocks and stock funds have returned about 10% to 11% a year, bonds closer to 5% to 6%, and the safest investments (like T-bills and savings at the bank) have averaged about 3%. Over the past 50 to 80 years, inflation has averaged about 3% a year as well.

Avoid mutual funds that do not have well-established track records. Why take a chance on a fund that has not proven itself? If you want to take chances, play the market. Every mutual fund's literature tells you when the fund was established, and shows its historical performance.

Avoid funds with erratic performance records. For example, you want your largest stock holding to be a stock fund that pretty much tracks the stock market. If the market was up 10% for the year and dividends averaged 2%, you should want to feel confident that your fund returned about 10% to 15% ... rather than maybe +25% or maybe -10%.

Avoid stock funds that are "non-diversified", unless you are investing in a sector or specialty fund that concentrates on a specific sector (like gold stocks or real estate stocks). You want the lion's share of your stock money to be in DIVERSIFIED funds that invest in many different companies across the different industry sectors.

Avoid mutual funds with high yearly expenses and fees! Expenses are taken directly from fund assets, and work to lower investors' returns. A mutual fund with low expenses might return 10% in a given year. An identical fund charging over 2% a year for expenses would return closer to 8%. A bond fund with high expenses could return 4% in a given year instead of 5% due to high expenses and fees.

Finally, avoid mutual funds that have sales charges whenever possible. These sales charges are called LOADS. The most popular mutual funds that have sales loads are called Class "A" funds. Here's how they work.

You write out a check for $20,000 to invest in a stock fund with an up-front load (sales charge) of 5%. Right off the top $1000 goes to pay sales charges. Your investment is worth $19,000.

Once you really understand mutual funds and investing, you can save a lot of money by simply buying NO-LOAD funds on your own. Now you pay NO sales charges, and can invest with LOW expenses once you know the ropes.

After all, a penny saved is a penny earned.

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Advantages of Index Mutual Funds

Investing in index mutual funds can be a great way of making profits. Actually the said funds are considered a type of mutual fund wherein a collective investment scheme is utilized. Index funds basically invest in specific kinds of stocks which belong to a particular index in the stock market.

Actually the said funds are available from various investment mangers. The good thing about the investment is the little involvement of human decisions. Most index funds rely only on computer models. That's why a passive management can be seen in this type of investment. In purchasing or selling of stocks, you don't have to consider too many factors.

Just depend on the computer model and you're through with it. The best thing with index mutual funds is the absence of active management. You don't have to keep track of all the stocks in the financial market. The most common indices used are S&p500, FTSE 100 and others. With the absence of active management, it brings about lots of benefits to the investor. You will truly appreciate investment in index mutual funds in the forms of its advantages. First advantage is the simplicity in the investment procedure. You can easily understand the trade even though you are only an amateur.

Managing your investment can be made easy. Once you've understand the objective, all will be easier for you to deal. The most important thing is determining the index target. When you can identify the target, you will then know what securities to hold. In addition, you don't have to pay lots of attention to the fund. Upon establishing a target, you'll feel confident in your investments. Just as long as your investments closely mirror the market as a whole, your investment will be safe. You don't have to worry a lot whether you'll be losing or not. Second, the fees you will be paying are totally low.

This is due to the fact of the lack of active management. This is really good news to people who are thinking on investing in index mutual funds. Moreover, in the said fund, the quantity is known pertaining to the composition of the target index thus running the fund is easier for the manager. The fund manager will then be imposing a much lower fee compared to other kinds of investments to the investors. They don't have to do lots of research with regards to the fund. Charging a lower fee is thus appropriate Third, there are no possibilities for drifting in styles.

If you will notice, other kinds of mutual funds easily drift styles. When we mean drifting, it connotes getting out of the desired style. The bad thing about drifting is the reduction on the diversification of the portfolio. By reducing the diversity, the risk in your investment will therefore increase. But in case of index mutual funds, there's no room for that- diversification of portfolio is even increased in this manner. If you really want to invest in mutual fund, choose index fund instead of others.

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Mutual Fund Investment With Zero Entry Load

If any investor makes investment in any mutual fund scheme, in India, through broker it attracts entry load normally @ 2.25%. The broker gets commission from Asset Management Company normally @ 2% to 2.25% or even more depending on the performance of the distributor. Since the entry load is deducted investment amount reduces to that extent.

Why investor is investing through broker is that he believes that broker is providing him advice for selection of right mutual fund scheme, he expect after sales service and off course marketing skills of broker. In the interest of Investors Securities & Exchange Board of India has issued guidelines according to which if anyone invests directly through Fund House in Mutual Fund Scheme there shall be NO ENTRY LOAD will be applied. It means entire amount will go to investment.

These guidelines are certainly beneficial for the investor. But only 5% of Investors are availing this facility, mainly because investors do not get after sales service from the fund house. In addition to it those who are aware of the market and mutual fund are generally opting for direct investment. If investor gets advice plus value added services with option of availing no entry load facility he will certainly think for the same.

It is the best option available for investors to invest in Mutual Fund without paying any charges for the same. Some brokers have already started giving this facility to their investors of making investment without paying any entry load in this case they only expect from the investor to transfer their direct investment through the concern broker.

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Best Performing Mutual Funds - Tips to Finding the Top Mutual Funds to Invest In

Mutual funds are an excellent investment vehicle and should seriously be considered as part of your portfolio if you want to be a successful investor. The benefits of finding the best performing mutual funds will allow you to diversify your investments while significantly reducing your risk.

While the current trend is to simply look at the past performance of a particular fund, this method simply does not work as what was successful in the past may not work as well in the future. Even looking at trade volume is a poor indicator of how well a mutual fund will perform.

So given these circumstances, how can you absolutely determine the best performing mutual funds? The short answer is that the best mutual funds will depend on what you intend to invest in whether it is a fund that specializes in stocks or bonds, and also how much risk you're willing to take.

With that said, there are several companies that analyze in detail thousands of available funds and assign them rankings based on very specific criteria. One such company is Morningstar that uses a simple star rating system to rate particular funds based on past performance and current trading value.

Another place to finding the best performing mutual funds is Lipper Leader Fund ratings which is similar to Morningstar but does things a little bit differently. They use five criteria in rating funds from total return, consistent return, preservation, tax efficiency and expense.

These factors combined helped to draw up a better picture of how well a mutual fund has performed in the past and how likely it is to perform in the future. In addition, there are also business periodicals such as Business Week and the Wall Street Journal that offer invaluable insight into popular mutual funds.

The bottom line to finding the best performing mutual funds is to thoroughly do your research behind a fund that you are interested in and combining data from different sources as to whether the fund is a smart investment. Which fund you invest in ultimately depends on you.

One of the most essential factors is doing thorough research into the board of advisory. Be sure that they have a track record of proven success and that they have adequate experience.

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Great Things About Asset Allocation Funds

Asset allocation funds can be a great way to approach investing because they allow you to benefit from the movements of stocks, while at the same time avoid the volatility they come with.

They do this by investing in other asset classes such as bonds as well as stocks. Some of the major benefits are.

1. Escaping volatility

Stocks can be very volatile and that can be very risky at times. So if you just buy a portfolio of stocks and the market crashes you could lose a large chunk of your portfolio. But if you had a diversified portfolio between both stocks and bonds a market crash might not affect you as much.
Bonds can be used to help you get through a bears market.

2. Diversified

How many times have you heard about diversification? Well that is because it works for a long term portfolio. The first thing you need to consider is risk so if you only invest in 1 asset class you are going to hold a high amount of risk.

If all you have are stocks and they start falling all of a sudden your portfolio is going to go down with it. This can be used for bonds too. A more diversified approach gives you a better long term outlook.

3. Some Funds Can Switch

Some Asset Allocation funds can switch from investing primarily in 1 asset class to another. So if stocks start outperforming bonds you can switch into being more heavenly waited on invest in stocks which can help you benefit from changes in any market.

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Today's Financial Crisis Was Predicted Almost 50 Years Ago, But Few Believed Or Understood

There's a real problem with mutual funds and the investment industry that promotes them. Understanding how the mutual fund industry is hurting your future isn't hard, but the solution is even simpler.

In this article, I'm going to introduce you to the source of problems in today's mutual fund industry. The place I'll start is someplace that you may not think is connected, but it is. I'm referring to a speech that was given on January 17, 1961. President Dwight D. Eisenhower had been running our country, and this was his farewell address to the country. This was a pretty dramatic moment. He had nothing to lose, no political office or fundraising to worry about. It was a moment of truth. Here, almost 50 years later, his speech is still remembered. It was really striking at the time.

He was warning us of a rising problem that he called the "military industrial complex." As a former general of the US Army, he really had a front row seat to the workings of the military. And then, of course, he was not a general but also Commander-in-Chief for eight years. From his front-row seat, he watched the massive buildup this country was undergoing in regards to the industrial complex. He talked about how this sector was intrinsically prone to moral hazard.

If you don't know what "moral hazard" means, it's when someone is protected from the risk or downside of his or her own actions. In other words, there is no negative consequence to their self-serving actions. As you might imagine, this can lead to very risky practices. This is true not only in the military or industrial military world, but also in the financial world.

Given Eisenhower's background, many people were stunned that he specifically used that term, "moral hazard," or even talked about this as a problem at all. He also described about how the military-industrial complex was prone to what is called "principal agent" problems. That's when the person you hire to help or protect you is more aligned with his or her own self-interests than yours. It's also a nice way of saying crooked. All this sounds familiar when you consider what has been going on at Wall Street and the financial world.

The third term he used was "rent seeking." That's when you hire someone who then makes money unfairly by manipulating the system he is operating in. This amounts to lying so skillfully that almost everyone buys it. Even the liar may come to believe it. Even so, it's still a lie.

President Eisenhower saw this happening in the 1950's, and he was quite concerned about it. This is also a very good description of what's been going on in the U.S. since the 1980's.

Now, in general terms, Eisenhower was talking about defense contractors when he talked about the military- industrial complex. But in a broader sense, he was also talking about the Pentagon, the Congress and the Executive branch. It's very similar to what's going on today, a kind of "industrial-investment complex." In the 1950's, 1960's, and 1970's, the industrial-military complex was putting the US at risk of collapse. And in the 1980's, 1990's, and 2000's, it's the industrial-investment complex that is more dangerous to the stability and safety of this country. The industrial-investment complex is not only Wall Street, but also credit card companies, banking companies, insurance companies, Congress and the Executive branch. They're all in on it. The SEC, the Commodities Futures Trading Commission, the Treasury and the Fed are all involved here. No one wants to admit it, but they're all systematically part of the problem.

If you are serious about making your money grow, then you have to understand how this complex works against you. It's not so much a conspiracy as a powerful force that moves against your wealth.

How the problems we heard about from Eisenhower were repeated is another topic, but we didn't learn from them. So we continued the pattern of greed and deception, and that laid the groundwork for where we are today. The conventional methods, ideas, and approach to wealth are crumbling. The status quo is rapidly changing. You have to ask yourself which side of the bursting bubble you want to be on, because there are always two sides.

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Buying Mutual Funds - Be Fooled Or Be Angry

Over the years, practices that hurt mutual fund investment results have become more and more common. The only protection is to understand and to act on this information. Modern mutual funds are typified by something I call mismanagement fees. These are expenses that don't have to happen, that aren't called fees, and aren't deliberately deceptive, like ones I've written about elsewhere. But these are kinds of fees, nonetheless. These fees reduce the growth of your money, with no penalty for anyone but you. They're typical of the industry, and really are a kind of mismanagement of your money.

There are two types of fees I will describe in this article. I'll call the first one "hyper-trading fees," and it includes everything negative that comes with that practice.

About hyper-trading fees: The first mutual fund ever started was started in 1924. For fifty years, they did things differently. From the second half of the 1920's up through the 1970's, trading by the mutual fund managers just wasn't done that frequently. The average stock was held for 6 years. Another way of saying it, turnover of investments was only about 7% a year. Then came the shift. And that shift was called the 401(k). From the 1980's and 1990's until now, trading frequency changed.

Today we have a turnover of 100%, meaning the average time a fund manager holds a stock is for a year or less. There are some mutual funds that even have a 200% or 300% turnover ratio. That means on average, they're only holding onto stocks for four to six months. They're no longer investing. They're no longer being prudent, doing due diligence, and looking for long-term results. They've become day traders.

Now, why should this matter to the investor? Well, there are a couple of reasons. For every 100% of turnover in stocks each year, there's about a 1% additional expense that gets added to an already-high management fee. An additional 1% expense, when it applies to an industry that manages $10 trillion, is huge, $100 billion huge. When numbers get that big, it boggles the mind.

The size of the numbers tells you, first, why there's so much energy put into making this look like they're taking care of the investors' interests when clearly they're not, and second, this tells one that when there's a problem with the system, it adds up fast. A portion of expense relating to hyper-trading comes from the taxes on holding stocks so short. Every trade that results in a gain gets taxed. So when trades happen this fast, the tax applies over and over and over, compared to holding on to stocks longer.

Here's another one: A fund manager routinely moves hundreds of millions of dollars, and sometimes even billions of dollars, in and out of a stock. Because of this volume, they're basically bidding up the price of the stock when they buy. What could be worse than buying a stock for more than it's worth? This: Same factors, same results, only in reverse when they sell. So the effect is doubled. They're pushing the price of stock down when they sell. Because of their size, they can pay more; at the same time, they're getting a lower price when they sell.

This hyper trading is absolutely hurting the returns that investors get on their money.

John Bogle, who founded Vanguard, does a lot of research on the mutual fund industry. He did a study from 1980 to 2005. He found that over this period, the S&P 500 grew an average of 12% a year. Then he looked at mutual funds' investment results for that same time period; over the same time period, mutual funds grew at 10% a year, 2% less. At first blush, 2% may not seem like that much. But a lot of little things add up to big things. This is one of those big things. Banks get rich by understanding the difference of a couple of percent over the years. You can too. Multiply the results over that period, and you find that these mutual funds end up not making an additional 2% a year for 25 years. That will earn the investor 44% less money over 25 years. Instead of making $1,440,000, the investor only makes $1 million over the same time period, a difference of $440,000.

The reason for that difference is the fees: hyper-trading fees, direct brokerage fees, fund supermarket fees, pay-to-play fees; basically, mismanagement fees. Without knowing this going in, it will be difficult to protect your money.

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Take the Mystery Out of Mutual Fund Jargon

We all know what it's like - you finally have some time and start reading, or you find a Web site that looks inviting and you come face to face with words, phrases, acronyms and technical terms that are just foreign to you. What do you do? If you're like most people, you forge ahead and try to discern and understand the intent and meaning of words and phrases that aren't in your everyday vocabulary, and then you kind of give up. Obviously that's not going to help achieve your investment objectives, goals and aspirations.

Here are a couple of examples that may help to illustrate the point. What's a "fed wire?" Should there come a time when you might need money quickly you can have cash sent to you overnight with a fed wire. This procedure involves the Federal Reserve System which is able to transfer monies form one bank to another overnight. The custodian of your fund is almost invariably a commercial bank and a member of the Federal Reserve System. By making arrangements in advance you can set up your fund account to use a fed wire to transfer money from the proceeds of a redemption (which you can arrange by phone) and send the proceeds to your bank where it will almost always be at your bank, in cash, the next business day. It's easy to do, just contact your fund's transfer agency (that's the shareholder service organization that maintains all of the records of all the shareholders of the fund you own).

Let's take it a step further and get a little more technical. What's the difference between ARMs and CMOs? Don't worry, it has nothing to do with either fingers or toes. The point is that there may come a time when having a convenient source or glossary of commonly used mutual fund terms may be helpful to you in arriving at a more informed investment decision. There's no doubt that you really can't know too much about anything that affects your financial future and well being.

A final note - has anyone ever spoken to you about a mutual fund withdrawal plan? You may have heard a great deal about how and which fund to invest in, but what about a system that allows you to withdraw a specific amount of money from your account either monthly or quarterly, which amount you can change or stop at any time (often with a simple phone call). Well, it can be done and many people enjoy this convenience while maintaining full control of the amount and frequency of regular, periodic cash withdrawals.

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Best Mutual Fund - Finding Your Investment Success

There are thousands of different mutual fund combinations out there. Finding the best mutual fund, therefore, might prove to be a challenging task in your eyes. What if I told you right now that I have the answer to that question? What if I could tell you the exact best mutual fund to invest in this second? Well I can, but I guarantee the answer will surprise you.

The best mutual fund to invest in is the one that suits your needs. That's right. There's no magic answer, no 'secret fund' that all the millionaires are using. The great thing about mutual funds is that they're fully customizable, and they offer instant diversification. Having a mutual fund allows you to invest a little bit of money into a lot of things, giving you better options for success all around. If you invest $2,000 in one or two stocks, you're taking a huge risk. While the reward might be worth it, the crash definitely will not. Invest that $2,000 in a mutual fund and you'll have your pick of investments. What exactly is in a mutual fund? I'm glad you asked.

A mutual fund can consist of many of the following investments:

-Stocks
-Bonds
-Commodities
-Real Estate
-Currency

In addition to these things, mutual funds can also include other investments. With your $2,000, you'll get a little slice of any of these that you want, depending on which mutual funds you consider, and how you choose to diversify your money. This might all seem like a lot to take in, and you might very well be wondering how in the world you're supposed to keep track of all this information. You need to take in what you can on your own, and then see a financial professional to help you choose the best mutual fund and learn how to best invest your money.

Mutual funds are easy to invest in, and you can choose from two different types so that if you don't want to pay heavy fees like you would with stock investments, you don't have to. You can even get professional picks on the stocks in your mutual fund for FREE, when it would cost you hundreds or thousands to research before you invest in stocks alone. You're certainly not going to prove to be 100% successful every single time, but having free professional picks certainly can't help. If you want to learn more about mutual funds, find a financial advisor near you today.

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Power Investing in Commodity Mutual Funds

Unless you have the time to do the proper research, one of the best and safest ways to invest in commodities is through a commodity mutual fund.

Commodity mutual funds are a great way to diversify your investment portfolio, in a way that complements stocks and bonds.

You can not only make a significant amount of money by doing this, but you can also hedge against losses because commodities tend to move in the opposite direction of stocks. Not always, but it is a general rule you can count on most of the time.

There are a variety of commodity mutual funds to invest in, and here are a few to understand and consider.

First of all there is the fund that holds the actual physical commodity it has invested in.

These types of funds will take ownership of things like gold and silver, and then issue units against them.

Another type of commodity mutual fund is one that buys futures contracts, where owning the specific commodity isn't a part of the picture.

These funds are operationally tracking funds, which track an underlying index, which of course is tracking the actual price movement of the commodities themselves.

Another thing to understand with these types of funds are they hold debt like US Treasury bonds, with which they can use to pay expenses if they choose to.

Another way of investing in a commodity mutual fund is through a fund set up specifically to invest in the stock of a company producing a commodity. They could be mining or agricultural companies, etc. Most investors understand this, but it is still a very good way of partaking in the commodity market.

So it's really not that difficult to understand, and if you follow the markets or choose a fund with a quality fund manager to manage the fund, you have really good chances at beating the stock market.

One must be able to live with the wide swings at times though, which is why I talked earlier about it not being for the weak at heart.

Even commodity mutual funds can move in large swings, and that should be understood so we don't just move in and out of commodities at a whim, and lose the value of sticking with it.

We always must remember to include a stop when we're investing in commodities, and need to put a stop loss in place to manage the risk we're taking on.

It's important to understand the basic way investing in commodities is done, as it helps us to ask the right questions of fund managers, which can put a healthy check and balance in place, so they don't think they can do anything they want without you checking up on them.

People across all professions admit that those taking the most interest in what they're involved in get the most attention, and it does counter the idea of just doing whatever they want. That's a good thing when its your money and future at stake

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The Truth About Mutual Fund Fees

Have you ever been "fee'd" to death? It's probably happening to you right now by the mutual fund industry, and you don't even know it. The worst part: the fees are deceptive, and you probably wouldn't pay them if you knew the truth.

The fee game involves getting "fee'd" to death by the mutual fund industry, what I like to call the "industrial-investment complex."

Here's some background: The fee that is charged is always presented as a percentage of assets under management. It's really smart for the mutual fund industry to do this. If they're managing a thousand dollars and their fee is 1 %, they're going to get $10. But if they're managing a billion dollars, the fee for assets under management is still the same percentage. It's still that small 1%. So the investor is thinking "Oh, wow, that's only 1%, that's small for all that service."

As the mutual fund industry has grown over the past 20 years, they manage more and more money; $10 trillion today, which comes to $500 billion in potential fees each year. That small fee that's shown as a percent of assets under management never looks that large. That's a main reason why investors think, "Oh wow, this is cheap and not that much" when, in fact, it's very expensive. Seemingly small percentages, added up and compounded over time, make a huge difference for your investments. Every unnecessary investment expense that recurs time and time again cuts deeply into your returns.

A much more equitable fee would be a percentage of income, or a percentage of performance. So if the fund grows its client's money 10%, it would charge the fee to performance and not the fee for assets under management. If it loses 40%, there would be a negative fee to performance. This would give a very accurate, absolute fee structure; however, the mutual fund industry would never do this because it would cut into their profits and show clients the truth, which is that fees are very, very expensive, and they are not good at growing your money.

There are also fees that you probably don't even see or know about. One of these is called the direct brokerage fee. This is how mutual fund companies pay inflated trading costs to their "preferred brokers." These preferred brokers are organizations that help the mutual fund industry sell and market their funds. So the mutual funds turn around and do business with them at an inflated rate. Basically, they're paying a higher rate than they have to.

Then there's what's called the principal-agent problem. This means the agent's attention is not on what is best for their client, but on what is best for the agent. What applies here is that they're not getting the best price for you. Instead of getting the best trading price that the public could get, they're giving business to a company based on how well they succeed at marketing to you, the investor.

Here's an example: In 2001, when the mutual fund industry was a lot smaller than it is today, America Funds, one of the largest fund companies in the world, paid out $34 dollars in direct brokerage fees. The brokers receiving these fees were selected purely because of "excellence" at marketing their funds to investors. That's an extra $34 million they paid out to organizations that helped sell their funds. That's a hidden fee that the mutual fund companies absolutely do not have to disclose for what it truly is: a sales commission.

It's completely bogus to pay these sums as brokerage commissions, but they do because it puts their funds at the top of a list, a list that your 'financial advisor' will promote to you. While this shows up on the books in such a way that it looks like the cost of conducting stock transactions, it's really a form of sales incentive that the clients end up paying for so that the mutual funds get sold to them. The brokers who sell the most mutual funds get a disproportionately large percentage.

The mutual fund industry calls this a brokerage commission, but it's really a sales commission. These are not investment companies; these are sales organizations masquerading as investment companies. What they are selling and trading is your future. You have to do something about it so your future isn't another pawn on a chess table. The first step in taking control of your financial future is to begin to understand the myths that are holding you back.

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My Secret Mutual Fund Investing Strategy Revealed

As a financial planner I was probably a little over-cautious about making sure that my clients did not lose money. But then, rule number one was that clients don't like to lose money. So, I developed a mutual fund investing strategy that I never shared with anyone ... until now. I'll tell you how it works by way of a true story.

In 1987 I sat down with a new client who had about $100,000 in an IRA, 100% of which was invested in stock funds. Jeff was a dentist, and being self-employed wanted help because he really didn't know how to invest, and his IRA was going to be a significant part of his future retirement security.

At that point in time I was very uncomfortable with the stock market. Jeff was very uncomfortable with his present adviser because he was losing money with him.

He wanted me as his adviser, and wanted to rollover his IRA as a first step in our new relationship. I told him that I was with him all the way, but first there was one thing I wanted him to do as I handed him the telephone. I had his current mutual fund statement in front of me, and had him dial the toll-free service number.

"Tell them to transfer all of your money to their safe money market fund," I suggested, and he did. I wanted him to do this because, like I said, I was not comfortable with market conditions and a rollover can take weeks before the paperwork goes through and the transfer of money actually takes place. I did not want him to lose his shirt in the interim.

I set the paperwork up so that all of the money that went into his new IRA with me went into OUR money market fund. This transaction would pay me exactly zero in commissions, because money market funds are very safe and very liquid and flexible. However, they pay the representative (me) zero.

Five weeks later the transfer of money took place, and it occurred at the end of the worst trading day in the history of the U.S. stock market. Stocks lost about 23% that day. Jeff saved well over $20,000, because he had been sitting safe in a money market fund when it happened.

Now, here's the investing strategy we then pursued; and how I subsequently made some commission for my efforts.

Jeff had $100,000 safely tucked away in our money market fund, and this money could be moved around at will into any other fund in the fund family. When it moved into stock or bond funds, I made a commission. Plus, we set things up so that he had money flowing into his IRA automatically each month from his checking account as new IRA contributions.

All money flowing into his mutual fund IRA went into his money market fund.

We then transferred half of his $100,000 from the money market fund equally into four different stock funds, so that he was 50% invested in stock funds. Our goal was to get him up to 75% in stock funds, keeping all four stock funds about equal, over the next couple of years. To accomplish this I set things up so that money flowed from the money market fund into each of the stock funds each month. In this way he was easing into the market over time. This is called DOLLAR COST AVERAGING.

When we reached our goal of 75% stock and 25% money market, I turned off the spigot.

Our long-term investing strategy was to maintain the 75-25 ratio, and to keep the value of the four stock funds about equal. Whenever the numbers got out of line by a few percentage points, we simply moved money around to bring them back in line. In other words, we REBALANCED his portfolio periodically.

Two powerful investing tools were employed in our investing strategy: dollar cost averaging and rebalance. Plus, Jeff had maximum flexibility in managing his total portfolio.

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Make Money by Watching the Best Mutual Fund Managers

There are a whole lot of mutual funds out there, and there are quite a few that aren't that impressive, but there are certainly a select few with amazing managers that seem to stand out year after year. Mutual funds are closely regulated and continually update shareholders on what stocks they have been purchasing and which they are selling, so it seems to me like more investors should be taking advantage of a nice free resource. By watching the portfolio of the best mutual fund managers you are able to get some great ideas for your own portfolio, and you can do it all for free.

Just about every major financial website give you a list of the top 10 or top 25 holdings of just about every mutual fund out there. Keep in mind that this information can be a few months old, so the manager may have been making quite a few moves since this list has taken place. Some critics use this argument as a reason for why you shouldn't pay attention to mutual fund holdings.

I understand the point, but if you are investing for any kind of long-term returns knowing what stocks are consistently in a mutual fund's top 10 can be a great tool to use. Many of the mutual fund related websites, such as Morningstar, will show you which stocks the managers have purchased more into since their last filing and which stock they have begun to trim their positions in. This information is useful because most mutual fund managers accumulate a stock over time, so it is often possible to pick up the stock as the manager is still in the accumulation phase.

What exactly makes a mutual fund manager the best? Consistent outperformance is absolutely the biggest key to being one of the best. Everyone can have a great year or two, but those who consistently are able to beat the market and their peers are the ones that you will want to follow closely. The best mutual fund managers also have a consistent strategy or theme that they use when investing, which should be apparent by looking at the moves they make in their portfolio. For example, some fund managers tend to look for companies that have fallen off the radar of most Wall Street traders, and other managers like to look for stocks that yield a high dividend.

The basis of this theory is that there so many different places that investors look for stock picks. There are stock pick message boards all over the Internet, and stock pick newsletters that charge huge amounts of money. Some of these sources may be useful, but many of them tend to fall victim to the pump and dump schemes that are so common now. On the other hand, if you are looking for information from the top mutual fund managers, why would there be any reason to doubt their motive? The mutual fund manager is trying to do his/her best to make money for investors and keep their job. A wise investor will use mutual fund portfolio holding information to help in the process of finding stocks worthy of an investment.

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What Are Exchange Traded Funds

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500

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Exchange-traded funds (ETFs) can be a valuable component for any investor's portfolio, from the most sophisticated institutional money managers to a novice investor who is just getting started. Some investors use ETFs as the sole focus of their portfolios, and are able to build a well-diversified portfolio with just a few ETFs. Others use ETFs to complement their existing portfolios, and rely on ETFs to implement sophisticated investment strategies. But, as with any other investment vehicle, in order to truly benefit from ETFs, investors have to understand and use them appropriately.

Understanding most ETFs is very straightforward. An ETF trades like a stock on a stock exchange and looks like a mutual fund. Its performance tracks an underlying index, which the ETF is designed to replicate. The difference in structure between ETFs and mutual funds explains part of different investing characteristics. The other differences are explained by the type of management style. Because ETFs are designed to track an index, they are considered passively managed; most mutual funds are considered actively managed. (For more insight, read Mutual Fund Or ETF: Which Is Right For You? and Active Vs. Passive Investing In ETFs.)

From an investor's perspective, an investment in an index mutual fund and an ETF that tracks the same index would be equivalent investments. For example, the performance of the SPDR S&P 500 ETF and a low-cost index fund based on the S&P 500 would both be very close to the to the S&P 500 index in terms of performance.

Although index mutual funds are available to cover most of the major indexes, ETFs cover a broader range of indexes, providing more investing options to the ETF investor than the index mutual fund investor.

Low Risk Investing Strategies

In the past couple years, many of us have taken some pretty big hits in our investment portfolios even in markets that we were told were "safe" or "recession proof."

I don't know about you, but I would like to get nice returns even if the market goes down. Heck, I'd settle for my portfolio staying not losing value and just staying the same during an economic downturn.

And that's what I'm going to talk about today. Some low risk investing strategies to do just that.

Understanding Risk

First, let's start off with an example of risk and why it isn't wise to risk a large percentage of your portfolio on a single trade.

There are some systems out there that have you risking 5% or even 10% of your money on a single trade. And while that's not too hard to make back, the problem occurs when you have a few bad trades in a row.

And if somebody tells you their system never has a losing trade, they're lying. Even the best will have a few losers in a row from time to time.

So let's say you have a few bad trades and your $50,000 account goes to $30,000. That's a 40% loss. Ouch.

So what return do you need to get to make back that 40% loss? Hint: It isn't 40%. It's actually 66.6% that you need to get now. I'll spare you the math, but you're welcome to do it. The reason that it's so much higher is that when you lose money you have a smaller base to work with than before.

Can you see why nearly all professional money managers are only willing to risk at most 2% on a single trade and frequently it's more like .5% or 1%.

That means even if the trader has 10 consecutive bad trades (it will happen at some point to everyone), you'll still only have lost about 20% of the account which can be made up with a few good trades. However, much beyond that 20%, and you're on dangerously thin ice.

Most people think mutual funds and bonds when they want low risk investing, however, exchange fund trading offers a lot of the same benefits that mutual funds do, but with better liquidity, lower fees, and intraday trading ability.

Thanks to Gary_Ruplinger for the article

Choosing Between Dollar Cost And Dollar Value Averaging Investing

Choosing Between Dollar Cost And Dollar Value Averaging

As investors, we face a bit of a dilemma: we want high stock prices when we sell a stock, but not when we buy. There are times when this dilemma causes investors to wait for a dip in prices, thereby potentially missing out on a continual rise. This is how investors get lured away from investing and become tangled in the slippery science of market timing - a science that few people can hope to master.

In this article, we will look at two investing practices that seek to counter our natural inclination toward market timing by canceling out some of the risk involved: dollar cost averaging (DCA) and value averaging (VA).

Dollar Cost Averaging
DCA is a practice where an investor puts a set amount of money into investments at regular intervals, usually shorter than a year (monthly or quarterly). DCA is generally used for more volatile investments like stocks or mutual funds, rather than for bonds, CDs, etc. In a broader sense, DCA can include automatic deductions from your paycheck that go into a retirement plan. For our purposes, however, we will focus on the first type of DCA.

DCA is a good strategy for investors with a lower risk tolerance. If you have a lump sum of money to invest and you put it into the market all at once, you run the risk of buying at a peak, which can be unsettling if the prices fall after the investment, which is known as timing risk. With DCA, that lump sum can be tossed into the market in a smaller amount, lowering the risk and effects of any single market move by spreading the investment out over time.

For example, suppose that as part of a DCA plan you invest $1,000 each month for four months. If the prices at each month's end were $45, $35, $35, $40, your average cost would be $38.75. If you had invested the whole amount at the start of the investment, your cost would have been $45 per share. By using a DCA plan, you can avoid timing risk and enjoy the low-cost benefits of this strategy by spreading out your investment cost.

DCA Pitfalls
All risk-reduction strategies have their tradeoffs, and DCA is no exception. First of all, you run the chance of missing out on higher returns if the investment continues to rise after the first investment period. Also, if you are spreading a lump sum, the money waiting to be invested doesn't garner much of a return just sitting there. Still, a sudden drop in prices won't damage you as much as if you had put it all in at once.
Some investors who engage in DCA will stop after a sharp drop, cutting their losses; however, these investors are actually missing out on the main benefit of DCA: the purchase of larger portions of stock (more shares) in a declining market, thereby increasing their gains when the market rises again. When using a DCA strategy, therefore, it is important to determine whether the reason behind the drop has materially impacted the reason for the investment. If not, you should stick to your guns and pick up the shares at an even better valuation than before.

Another issue with DCA is determining the period over which this strategy should be used. If you are dispersing a large lump sum, you may want to spread it over one or two years, but any longer than that may mean missing the general upswing in the markets as inflation chips away at the real value of the cash. (For more insight, see All About Inflation.)

DCA may not, however, be the best choice for a long-term investment strategy. It may not even be the best choice for dispersing a lump sum.

Enter Value Averaging
One strategy that has started to gain favor is the value averaging technique, which aims to invest more when the share price falls and less when the share price rises. It is done by calculating predetermined amounts for the total value of the investment in future periods and then making an investment to match these amounts at each future period.

For example, suppose you determine that the value of your investment will rise by $500 each quarter as you make additional investments. In the first investment period, you would invest $500, say at $10 per share. In the next period, you determine that the value of your investment will rise to $1,000. If the current price is $12.50 per share, your original position comes to be worth $625 (50 shares x $15), which only requires you to invest $375 to put the value of your investment at $1,000. This is done until the end value of the portfolio is reached. As you can see in this example, you have invested less as the price has risen and the opposite would be true if the price had fallen.

Therefore, instead of investing a set amount each period, a VA strategy makes investments based on the total size of the portfolio at each point. Below is an expanded example comparing the two strategies:



As you can see, the majority of shares are purchased at low prices. When prices drop and you put more money in, you end up with more shares (this happens with DCA as well, but to a lesser extent). Most of the shares have been bought at very low prices, thus maximizing your returns when it comes time to sell. If the investment is sound, VA will increase your returns beyond simply dollar cost averaging for the same time period. And it does so at a lower level of risk. Additionally, in certain circumstances, such as a sudden gain in the market value of your stock or fund, value averaging could even require you to sell some shares without buying any (sell high, buy low). Value averaging is a simple, mechanical type of market timing that helps to minimize timing risk.

DCA vs. VA
Choosing between the two depends on your reasons. If it is the passive investing aspect of DCA that attracts you, then stick to it. Find a portfolio you feel comfortable with and put the same amount of money into it on a monthly or quarterly basis. If you are dispersing a lump sum, you may want to put your inactive cash into a money market account or some other interest-bearing investment. If you are feeling ambitious enough to engage in a little active investing every quarter or so, then value averaging may be a much better choice.

In both these cases, we are assuming a buy-and-hold strategy - you find a stock or fund that you feel comfortable with and purchase as much of it as you can over the years, selling it only if it becomes overpriced. Legendary value investor, Warren Buffet, has suggested that the best holding period is forever. If you are looking to buy low and sell high in the short term, by day trading and the like, then DCA and value averaging are of little use. If you invest conservatively, however, it may be just provide the edge you need to meet your goals.

courtesy of Investopedia


Best Books For Dollar Value Averaging


Best Dollar Cost Averaging Books

Who Should Invest in Mutual Funds?

It's a shame that most Americans have heard about mutual funds, but few really understand them. Tens of millions of investors have money in these managed pools of investors' money, yet few of them really understand the investment options inside their fund family or 401k plan.

At the same time, some people are invested in mutual funds in their 401k, and don't even know it! Unfortunately, many folks are confused about mutual funds and investing in general. Most want to do what is best for them financially, as long as they can make more money than they can at the bank without taking much risk.

Who should invest in mutual funds? Anyone who can relate to what they just read should!

What's the difference between speculative stocks, junk bonds, stock options, commodities futures contracts vs. mutual funds? The answer is that only investors with considerable investment knowledge and investing experience should play with the likes of speculative stocks and the rest of the lot.

The rest should invest in mutual funds. This includes about 98% of the investing public. Let me get a little more specific.

If you want a safe place to invest and earn competitive interest rates, invest in money market mutual funds. You can get your money back quickly and easily with no sales charges or fees for early withdrawal.

People who want to earn higher interest with moderate risk should invest in bond funds.

Anyone who wants to participate in the stock market without picking his or her own individual stocks to invest in should invest in stock mutual funds.

All those who want a balanced portfolio of stocks and bonds should consider traditional balanced funds.

Folks who would like to be invested in gold, oil, other natural resources, or real estate should consider specialty mutual funds.

If you want to keep your decision making to the absolute minimum, you should invest in LIFECYCLE or TARGET RETIREMENT mutual funds. Here you simply tell the fund company if you want to be conservative, moderate, or aggressive in your investing. Or, tell them when you plan to retire, or if you are already retired. They manage your money accordingly, usually at a moderate cost to you.

The odds are that you should invest in mutual funds. My job is to inform people. Yours is to do some learning, and then to invest in mutual funds.

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7 Keys To Mutual Fund Investing

There are 7 basic things you should keep in mind when putting together a portfolio of mutual funds. Pay attention to these 7 key items, and you're on your way to successful investing.

1. Decide upfront whether you want to be conservative, moderate or aggressive. Don't stray far from moderate unless you are retired and adverse to risk, or young and willing to accept considerable risk for the potential of high returns.

2. Mix it up by owning stock, bond and money market funds. A moderate portfolio should be about 60% invested in stock funds, with the rest split between bond and money market funds.

3. About 60% of your stock dollars should go to diversified U.S. (domestic) stock funds, with 25% to 30% going to international funds. For the remainder consider a mix of real estate, gold, and natural resources specialty funds to add balance to your portfolio.

4. When selecting bond funds avoid long-term funds and low quality (junk) funds. These pay higher dividend yields, but carry more risk. Concentrate on intermediate-term high quality funds. Don't invest in tax-exempt funds unless you are in a higher tax bracket.

5. For the sake of safety, flexibility and liquidity, always keep some money in money market mutual funds. To be cautious in a low-interest- rate environment, make your allocation to money market funds about equal to your allocation to bond funds. Invest in tax-exempt money market funds only if you are in a high tax bracket.

6. Now, review your overall mutual fund portfolio. You should be about 60% in stock funds, 20% in bond funds, and 20% in money market funds. This will put you in a moderate position, leaning somewhat to the conservative side.

7. Keep your investing costs low. Avoid sales charges whenever possible. Look for funds with low expense ratios. No-load funds and index funds are the key to saving thousands on sales charges, fees, and expenses.

That's it, plain and simple. When your percentages get out of line as time goes on, rebalance back to 60% stock funds ... 20% bond funds ... 20% money market funds. Within the stock category, keep about 60% in U.S. funds ... 25% in international stock funds ... 15% in specialty funds.

This should keep you in the middle of the road, and on course for long-term growth with only a moderate level of risk.

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Why Mutual Funds Are the Best Option For Wealth Building

Mutual funds are making a strong penetration among common people. The reason is very clear. Every individual keeps interest to make money. But, due to lack of proper knowledge they hesitate to enter into the stock markets. So, mutual funds give a good platform for common investors.

Investments in any financial instrument requires some expertise. But, if we will talk about stocks, bonds and some special financial instruments then it requires more expertise and constant supervision to enable an investor to take informed decisions.

In general, Small investors usually do not have the necessary expertise and the time to undertake any study that can facilitate informed decisions while investments. This is the predominant reason for the popularity of mutual funds. Apart from it, there are many other benefits that can be taken by investing in mutual funds.

Investors can diversify their investments by investing in mutual funds. Small investors may not have the amount of capital that would allow optimal diversification. Since the corpus of a mutual fund is substantially big as compared to individual investments, optimal diversification becomes possible. As the individual investors' capital gets pooled into a mutual fund, all of them are able to derive the benefits of diversification.

Apart from it, investors can save transaction cost by investing in mutual funds. Transactions of a mutual fund are generally very large. These large volumes attract lower brokerage commissions and other costs, as compared to the smaller volumes of the transactions entered into by individual investors. The brokers quote a lower rate of commission to fund houses. So, investors can get benefit.

Other benefits are also with mutual-funds. Mutual funds generally offer a number of schemes to suit the requirements of the investors. Thus the investors can choose between regular income schemes and growth schemes, between schemes that invest in the money market and those that invest in the stock market, etc. Some schemes provide some added advantages also.

The most important thing is mutual-funds are managed by professionals. Mutual funds are generally managed by knowledgeable, experienced professionals whose time is solely devoted to tracking and updating the portfolio. Thus, investment in a mutual fund not only saves time and efforts for the investor, it is also likely to produce better results.

Liquidating a portfolio is not always easy. There may not be a liquid market for all the securities held. In case only a part of the portfolio is required to be liquidated, it may not be possible to sell all the securities forming part of the portfolio in the same proportion as they are represented in the portfolio. These problems can be solved by investing in a mutual fund. A mutual fund generally stands ready to buy and sell its units on a regular basis. Thus, it is easier to liquidate holdings in a mutual fund as compared to direct investment in securities.

Now days, fund houses are providing many option for investors. According to requirements, investors can choose the best option.

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The Best Time to Invest Money

The best time to invest your money is NOW ... if you understand diversification and dollar cost averaging. Look at it this way. If you don't invest your money, you'll either spend it or earn low interest rates as a saver.

The only way to get ahead is to learn how to invest. This is not as difficult a proposition as most folks believe it to be. Let me explain with some simple logic, in the form of a short story.

At a wedding reception in the early Spring of 2009, a young man named Cameron listened as his much-older uncles complained about their investment losses. "My broker's worthless, and I've lost half my money in stocks in the past year", stated Uncle Ron. "I'm earning less than 1% in interest", declared his conservative Uncle Jack. "My real estate investments are under water", Uncle David added.

Cameron had a thought as he vacated the circle of conversation. He applied simple logic to what he had just heard. He knew that both stock prices and real estate values usually went up. That's why most investors make money in both investment arenas.

If both real estate prices and stock prices are low, it might be a good time to invest money, Cameron reasoned. But he had a few unanswered questions on his mind. First, he did not know how to invest. Second, he didn't have a pot full of money. Finally, which was the better investment ... stocks or real estate? Obviously, no one ever gets rich earning low interest rates.

The next morning Cameron sat down for a cup of coffee with Uncle Jim, who was supposed to know all about this investment stuff. They formulated the following plan.

Cameron would open an IRA with a large no-load mutual fund company, since he wanted to invest money for retirement. He would have $400 a month flowing from his checking account to the fund company. It would be divided equally into four different mutual funds: an S&P 500 Index fund, an international stock fund, a real estate fund, and a money market fund.

This would give him diversification in both stocks and real estate. The money market fund offered a bit of safety and flexibility.

Cameron would keep the value of his four funds about equal. If the value of a fund got out of line with the others, he would transfer money from one to another to even things out. Uncle Jim called this "rebalancing" his portfolio. He would do this once a year.

Plus, he would have dollar cost averaging working for him, since he had a fixed amount of money flowing into each fund every month. If the price of a fund fell, the money flowing into it would automatically buy more of the cheaper shares. If the price rose, he would be buying fewer at the higher price.

Should the stock market and/or real estate market get real cheap, Cameron would have some powder dry to take advantage of the situation. He could move the money in his safe money market fund into the other three funds.

Now is always a good time, if you know how to invest.

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The 2 Worst Mutual Fund Mistakes You Can Make

The worst mistake you can make when it comes to mutual fund investing is to procrastinate and tell yourself that you'll look into it later.

You can get started on your own, and you don't need a great deal of financial savvy to get the show on the road and invest in mutual funds (funds). Don't let fear of failure stand in your way. You can start small and play it safe, taking it one step at a time.

Start by opening a mutual fund account with a major no-load mutual fund company like Fidelity, Vanguard or T. Rowe Price. Go to their web site and/or call their toll-free number to get info and an application. Put your initial mutual fund investment in their largest general money market fund.

Now, you're in business with little to worry about. Your money is earning interest and is safe. You can add more money, or pull money out whenever you want at no cost to you. You have plenty of time to learn and formulate your long-term mutual fund investing strategy, and you can always call their service desk if you have questions.

You will get periodic statements from the fund company showing you exactly where your money is and what your account is worth in dollars and cents.

There's a second mistake you should avoid, and it's almost as bad as procrastinating. Don't put much credibility in what friends and neighbors tell you about their experiences with mutual fund investing.

Tens of millions of Americans own funds in their 401k, IRA, or in other accounts. Virtually all of them lost money in 2008 and early 2009, and some of them lost as much as half of their money in a year and a half.

They didn't take these losses because mutual funds are bad investments. They got beat up because they had too much money in stocks ... stock funds ... and the stock market took its worst beating since the great depression of the 1930's.

On the flip side, such losses are rare in mutual fund investing. Most of the time mutual fund investors make money, and those in stock funds make considerably more than they could in safe investments like bank CDs. Don't let anyone discourage you from investing in mutual funds.

From 1982 to 2000 stocks went up about 1400% in value. You could have doubled your money in stock funds in the 5 years between 2002 and 2007, when CDs at the bank were paying 2% to 4%. Making 3% a year it takes 24 years to double your money!

After you have made your initial mutual fund investment, consider moving a modest amount of money to stock funds and perhaps bond funds. Start with the funds that are ranked as "less risky" or as "more conservative" by the literature you received from your fund company.

Take things a step at a time and relax. Do your homework and continue to read articles. Before long you should find that you can invest in mutual funds and make money, as long as you avoid the 2 biggest mistakes.

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What Is A Mutual Fund?

A mutual fund is an investment company that pools together the money of its shareholders, and invests it in a variety of stocks, bonds or money market instruments. Mutual fund is usually managed by a professional fund manager, who is responsible for making investment decisions. By owning a share of a mutual fund an investor automatically owns all the shares the fund owns.

Over the years, mutual funds have become very popular amongst the investment public. Billions of dollars have flowed into mutual funds and they continue to expand. Two benefits of investing in mutual funds that make them so popular are, the ability of investors to automatically diversify their investments by buying shares of the fund and the professional management provided by the funds managers. These benefits make investing in funds especially appealing to novice investors.

Potential investors looking to invest in mutual funds will be faced with a wide variety of choices to pick from. There literally exists, a fund to match any type of investment objective out there. From growth to income to bonds and even "green" funds - funds that only invest in environmentally friendly companies, the number of funds available continues to expand every year.

To own a mutual fund, all a potential investor has to do is buy a share of the fund. The price of the share, termed its Net asset value (NAV), is determined by dividing the total market value of the funds investments by the total number of the funds shares outstanding. The Net asset value is calculated daily. Most mutual funds require you to make a minimum initial purchase. Funds can be purchased from a broker or from the mutual fund company itself. In order to cash in on a profit from a rise in share price or dispose of shares, an investor simply sells his fund shares back to the mutual fund.

An expense a potential mutual fund investor might have to deal with is the sales charge, called the load. Some funds require you to pay a load fee when you buy into them while others don't. Funds that require you to pay the fee are called Load mutual funds, while those that don't charge a sales fee are called No-load mutual funds. Studies have shown that there is no difference in performance between No-load and load funds. Another expense investors have to be aware of is the management fee charged by fund managers to manage the funds. It is usually a percentage of the total assets under management and varies from fund to fund. These expenses can add up quickly and investors should pay special attention to this.

Mutual funds continue to be a very popular investment vehicle and will probably continue to be so for the foreseeable future.

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The Best Mutual Funds For New Investors

You want to get started as a mutual fund investor. What funds should you invest in? You have thousands of different mutual funds to choose from. I suggest you first open an account with a major no-load mutual fund company like Vanguard, Fidelity or T. Rowe Price. Then pick these two funds to invest in, investing an equal amount in each.

Remember, you are just getting your feet wet and don't want to start with a bad experience. So, here are what I suggest are your best mutual funds to get started with. Your overall risk will be low to moderate.

Your first pick is a no-brainer, a money market fund. These are the safest of all mutual funds and their value or price does not fluctuate. In this investment you simply earn interest in the form of dividends. The amount of interest you earn varies, based on interest rates in the economy.

There should be zero cost to invest in a money market fund, no commissions or sales charges called LOADS. Once you have money invested here, you can move it at will to other funds offered by the fund company (also called a fund family).

Keeping things simple, your other best "starter fund" is called a BALANCED FUND. These funds invest in both stocks and bonds, so risk is generally moderate. These days there are several variations of balanced funds, giving the investor plenty of latitude. There are traditional balanced funds, asset allocation funds, lifecycle funds and target retirement funds.

All balanced funds have a diversified portfolio of stocks and bonds, but they vary in terms of safety, dividends, and growth potential. Basically you can place them into three different risk categories: conservative, moderate, or aggressive. I suggest you go with a balanced fund labeled as moderate in the fund literature you get from the fund company.

Traditional balanced funds have been around for many years and have a moderate asset allocation of about 60% stocks and 40% bonds. This ratio of stocks to bonds remains fairly constant. These traditional funds are generally simply called "balanced funds", and are a good solid place to invest for the new investor.

If you want to get more conservative or aggressive, I suggest lifecycle funds. For example, an aggressive-growth lifecycle fund would be the riskiest and would be heavily invested in stocks vs. bonds. Dividends would be low to insignificant. On the other hand, a conservative lifecycle fund emphasizes bonds vs. stocks, and hence is safer and pays higher dividends.

For most new investors I suggest a traditional balanced fund, or a lifecycle fund labeled as either moderate-growth or conservative-growth.

With half of your money in a money market fund and half in a balanced fund you won't get rich quick, but you won't lose your shirt when things get ugly in the economy either.

Once you learn how to invest and gain in confidence, you can expand your horizons. All three of the fund families mentioned offer a wide array of investment choices. Plus, all three offer funds with no commissions, no sales charges ... NO-LOAD. Learn how to invest at your own pace. Until you feel up to speed, just relax and stick with your starter funds.

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Why Mutual Funds Are Great

Many people are tired of the poor interest rate of savings accounts. These days it barely outruns inflation. CDs and treasury bills likewise do not offer strong investment returns. The financial instrument that really offers the best long-term gains is the stock market. But don't worry - you don't have to be a stock expert to get exposure. There is an excellent financial product that millions have bought and you can do as well - mutual funds.

Mutual funds are excellent because of their convenience. You do not have to individually own any stocks. Instead, money is pooled with other investors in the fund. The capital is then managed by professional managers and analysts. This makes them a very low maintenance investment. You do not have to log into your stock brokerage account every few days to see how your stocks are doing. It is a "set and forget" investment.

Another benefit of owning a mutual fund is the broad exposure you will get. If you are just starting out often you will only have enough money to buy one stock. This greatly increases your risk exposure. If the one stock you buy is Exxon Mobil, your savings will largely depend on the price of oil. But if you buy a mutual fund, you will be getting a small slice of usually hundreds of stocks. Your portfolio will still be affected by the price of oil but it will no longer be a determining row.

Mutual funds offer excellent benefits to the typical retail investor. This is because of their convenience and the diversity they offer. They should be seriously considered by anyone trying to invest in the stock market.

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