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.
courtesy of http://EzineArticles.com/?expert=Warren_Parker
Wednesday, November 18, 2009
Friday, November 6, 2009
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.
courtesy of http://EzineArticles.com/?expert=Shaun_Rosenberg
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.
courtesy of http://EzineArticles.com/?expert=Shaun_Rosenberg
Sunday, October 25, 2009
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.
courtesy of http://EzineArticles.com/?expert=Ronald_Peck
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.
courtesy of http://EzineArticles.com/?expert=Ronald_Peck
Wednesday, October 14, 2009
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.
courtesy of http://EzineArticles.com/?expert=Ronald_Peck
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.
courtesy of http://EzineArticles.com/?expert=Ronald_Peck
Friday, October 2, 2009
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.
courtesy of http://EzineArticles.com/?expert=Dan_Calabria
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.
courtesy of http://EzineArticles.com/?expert=Dan_Calabria
Friday, September 25, 2009
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.
courtesy of http://EzineArticles.com/?expert=Asav_Patel
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.
courtesy of http://EzineArticles.com/?expert=Asav_Patel
Tuesday, September 15, 2009
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
courtesy of http://EzineArticles.com/?expert=Taylor_Raimee
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
courtesy of http://EzineArticles.com/?expert=Taylor_Raimee
Wednesday, September 2, 2009
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.
courtesy of http://EzineArticles.com/?expert=Ronald_Peck
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.
courtesy of http://EzineArticles.com/?expert=Ronald_Peck
Saturday, August 22, 2009
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
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.
courtesy of http://EzineArticles.com/?expert=James_Leitz
Wednesday, August 12, 2009
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.
courtesy of http://EzineArticles.com/?expert=Jacob_Lindahl
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.
courtesy of http://EzineArticles.com/?expert=Jacob_Lindahl
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