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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
Monday, December 28, 2009
Friday, December 18, 2009
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.
courtesy of http://EzineArticles.com/?expert=Rick_Goldfeller
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.
courtesy of http://EzineArticles.com/?expert=Rick_Goldfeller
Sunday, December 6, 2009
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.
courtesy of http://EzineArticles.com/?expert=Sadanand_Thakur
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.
courtesy of http://EzineArticles.com/?expert=Sadanand_Thakur
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