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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
Thursday, July 30, 2009
Tuesday, July 28, 2009
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.
courtesy of http://EzineArticles.com/?expert=Swati_A
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.
courtesy of http://EzineArticles.com/?expert=Swati_A
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
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.
courtesy of http://EzineArticles.com/?expert=Tom_Derekson
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.
courtesy of http://EzineArticles.com/?expert=Tom_Derekson
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
Why Mutual Funds Are Great
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.
courtesy of http://EzineArticles.com/?expert=Alex_Villanueva
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