Finding the Best Mutual Fund For Your Money

Mutual funds have increased in popularity immeasurably over the past one hundred years. Though the mutual fund was seen primarily as an instrument for the rich at first, today they allow many average individuals the chance to earn a decent return on their money. This article will examine how to choose a mutual fund that will deliver superior returns over the long term.

The first thing that you need to consider when evaluating any potential investment is what are the opportunity costs of the particular investment. If you are planning on putting money aside for a mutual fund, you need to be certain that the money can not be better served somewhere else. For instance, if you have a significant amount of consumer debt, it is usually advisable to use monies to pay down that debt rather than invest in a mutual fund.

If you have determined that the best course of action is to invest for your future, then you are ready to take a look at the mutual fund landscape and determine which fund meets your objectives. Because the primary objective of investing your money is to earn a return that exceeds what you might receive in a guaranteed investment vehicle such as a government bond or certificate of deposit, there are several metrics that you need to familiarize yourself with.

The first of these metrics is the expense ratio of the fund. All funds charge a percentage of the assets under management as their fee. In an actively managed mutual fund, meaning that fund manager picks and chooses stocks in order to try to earn a market-beating return, the expense ration can be pretty high. If your fund carries an expense ratio of 2.5% it will need to outperform its benchmark by 2 percentage points if the index for that benchmark carries a 0.5% expense ratio. This is significant. You see, most managed funds do not outperform their benchmark over the intermediate term and a 2% annual out-performance is often rare.

For this reason, it makes sense in many situations for a person to simply invest in an index fund such as the S&P 500 rather than pay a mutual fund manager to try to beat the market. Beating the market is fairly rare for the professional fund manager, as 75% of fund managers will actually under-perform the market in a given year.

Another consideration that you should keep in mind is the type of holdings that the fund will be invested in. If you are interested in receiving income from your mutual fund then you will want to be in a fund that is invested in securities with a significant dividend yield. If, on the other hand, you are more concerned with performance, then the dividend potential of the mutual fund may be of less importance to you.

Considering these factors, it is important that you do your homework before you commit to buying a particular fund. The fact of the matter is that you want your money to work for you, so researching your investments in a prudent strategy.

Alex writes about a variety topics related to personal finance and money management. He maintains a blog where his opinions on these matters are available for free. Please visit for more information.

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International Mutual Funds

International mutual funds invest in foreign stocks. Have you ever thought of international mutual funds? An easier way to invest internationally is through mutual funds that specialize in foreign investments. Investors choose international mutual funds just as they choose domestic stock and bond funds.

Now some funds invest in a mixture of different countries that includes US companies. So depending on their mix of countries, mutual funds can be classified as country, regional,global and international. International funds invest in securities of companies whose stocks trade on foreign exchanges. Global funds invest in securities of companies across the globe as the name implies including US companies.

Regional funds invest in companies based within a certain region like Latin America, Europe or Pacific Rim. Investing in international funds can give you diversification as compared to investing in individual foreign stocks. How to go about choosing the right fund that matches your investment needs? As an investor you should always try to read the prospectus of the mutual fund thoroughly before you make your final choice.

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Finance – A Diversified Portfolio to Stabilize Your Investment Income

Investing in the stock market is a risk, but one that can be managed if it is handled the right way. One of the biggest downfalls of many beginner investors is the fact that they do not spread their money out enough and when one sector of the market gets hit, they end up losing their entire portfolio. A diversified portfolio will protect you against that from ever happening.

Having a diversified portfolio is like having an emergency brake on your investment account. Just when you think that the investment world is speeding out of control, your diversification is there to slam on the breaks and ensure that you are protected against a sure disaster. For every market that goes down, there is one that goes up and if you correctly diversify, your other stocks can recover from the ones that are hurting you.

One of the keys to a diversified portfolio is to have your money spread out over several sectors. The market can shift without warning and while you may have one sector that is in decline, you will have others that will continue to grow and offset those losses. As you are putting together your portfolio, a nice mix of cyclical and countercyclical investments is strongly recommended.

The cyclical stocks are going to be where you will see the greatest fluctuation in income and where you will probably have the most movement in your account. These are the types of investments that pay off during flourishing times. For instance, when the “cash for clunkers” promotion was going on, the auto industry received a quick boost. Ford stock went through the roof compared to its price just a few short weeks prior and this paid off for its investors.

Now just because the market or economy is on a downward trend does not mean that cyclical stocks are bad to have in your portfolio during down times. It is actually quite the contrary. There are still business that flourish when other industries and the market as a whole are spiraling downward. A good example in recent times would be the shipping industry and steel industry as they ramp up for the upcoming push in construction and shipping of goods to suppliers.

However, you still want to mix in countercyclical stocks for stabilization. These are stocks that are going to show moderate gains regardless of what the overall market is doing. Investing in food companies along with energy and health care companies will go a long way to even everything out in good times and more importantly, in bad.

Volatility in a stock is also something to be concerned with. While most of your countercyclical stocks will be higher priced investments, you can take a larger risk with small cap stocks that have a huge payoff on them when you are right. These stocks will usually be associated with smaller companies that show dramatic swings. When the swing is in your favor, you can see upwards of a 500% profit on your investment in a single day.

Having a diversified portfolio is what every investor strives for and what keeps them in the market when other people are still watching from the sideline. Having a good mix allows you to take the slow and steady profits from the big name companies and also allows you to explore some riskier investments with the possibility of a huge payoff. You can spread your money around and hopefully allow yourself to build an investment portfolio that will truly make those retirement years golden.

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Factors That Determine Mutual Fund Prices

Mutual funds are investments that come at different prices depending on the type of securities they are invested in. Other factors that help determine the prices are the prevailing market forces. The prices are also to some point, influenced by the classes of the funds. This means that the classes have the same rights and shareholder servicing fees and the difference comes in the sales charges and distribution charges.

The prices are best determined through a method known as indexing. Indexing is the practice of shareholding a representative collection of securities. There are different methods of doing so and depending on how the indexing is done, prices will most definitely differ. Synthetic indexing for example translates to higher yielding instruments as this means that taxes will be withheld.

Other methods of indexing include the enhanced indexing, which is the more improved version of the synthetic method and the operating indexing. This is a method of comparing a company’s financial performance against that of other companies. If it more favorable, prices are likely to go higher. There are advantages associated with this method of pricing and one of them is that there are low costs involved. This reflects directly on the investors returns because, it then means that they get to pay less in terms of management expenses and fees and hence they get a bigger portion of returns. There is also simplicity in understanding the process of indexing as well as pricing.

There is need for investors to understand that, low prices do not necessarily mean good performance of a mutual fund, neither do high prices mean poor performance. The best way to go about determining which prices are likely to favor you as the investor and the way to do this is to study the past performance of the investment over the years.

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The Best Investment Management For the New Investor

The best investment for the new investor features professional investment management and asset allocation with an investment company you can trust. Though today’s headlines make investor fraud look like the national pastime, there are places the new investor can invest with confidence. Read on, and I’ll fill you in and steer you toward the best investment management that’s very affordable.

As an inexperienced or new investor you need help with investment management and asset allocation, even if you don’t fully understand these terms. You also need help in separating the good guys from the bad guys. Let’s start with the latter.

Financial fraud and illegal schemes that financially wipe out innocent investors are largely the domain of independent operators or middlemen. You can best avoid them by investing directly with a major investment company. By definition, a mutual fund is an investment company.

To find one you can afford and trust, go to your favorite search engine and enter “top mutual funds”. Some of the fund companies listed work directly with investors and have no sales charges. Included are the two largest in America: Fidelity and Vanguard. In my opinion, these large investment companies offer the best investment management that is both available to and affordable to the investing public. They are a great place to start investing.

Some of the funds they offer take care of the asset allocation for you as well, at a total cost of 1% a year or less. These are called BALANCED FUNDS, which in my opinion are the best investment for the inexperienced or new investor who wants to keep things simple. Balanced funds do the asset allocation for you by investing in stocks and bonds and money market securities.

Balanced funds range in risk from conservative to aggressive. You simply pick the fund that fits your comfort level, and they do the rest. Millions of investors trust the major fund companies, and the mutual fund industry has been regulated by the government for years. So, relax new investor and start small.

You can start investing with a trustworthy investment company that takes care of the investment management and asset allocation for you at relatively low cost. Then if you want to grow and learn to invest on your own, find yourself a good investing guide and pour over it. Who knows, someday people might be coming to you for investment help.

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Balanced Mutual Funds, What Makes Them Safe to Invest Your Money?

It is important that you take your time and analyze the different types of investment opportunities that are available in the market. It is easier when you understand how these options vary and how they work. There are various opportunities where you can invest your money and mutual funds are one of these. This is a type of investment that has many different concepts and can help you make an informed choice on the investment that you want to make.

One type of this investment is the balanced mutual fund that invests in some stock components, bonds and the money market that is combined into one category. It is also known as hybrid or asset allocation fund. Therefore, you get the returns from the stock while also the safety and steady income of the bonds. You also minimize your risk of investment in the market. If you want to achieve a short term goal, this type of investment option is good for you.

The risk that is carried by stocks and bonds investment is different, so when you combine them into a single component the risk is evenly spread and the investments balance one another. This can be especially helpful during tough economic times. You also have the opportunity to get all they are looking for under one stop since you get what you are looking for under a single investment.

Balanced mutual funds are flexible when it comes to asset allocation so they change the allocation depending on market conditions. This is a good way for you to invest your money since you get moderate returns with lower risks.

Mercy Maranga writes content on Finance and Finance Management. Visit her site here for more information on Mutual Funds and how to effectively invest your money. Mutual Funds

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How to Pick a Winning Mutual Fund

Mutual fund is one of the most popular investment vehicles in the market nowadays, generally it pools money from huge number of investors and diversify the investment into a number of selected stocks from different sectors, bonds, and other securities. It is so popular among average investors because it lifts the burden off of having to pick up some of the most important investment intelligence. This important task is then handed over to the fund manager who we hope can invest our money better than us

However, even though managed by reputable investment firms, the best financial institution, or the so called expert of the field, still many investors out there are not making much money, worse yet even more investors are still experiencing heavy losses. There are many reasons investors are not making money from mutual fund.

1. High Entry Cost and Annual Fee. Some funds charge as high as 6% at initial entry and 1.5 – 2% every year as administrative charges. This means that before you mutual fund even earning you some returns, you are down by 8%. In order to make any gain, the fund will basically have to perform at the rate of return of 8% or more.
2. Snapshot of Big Gain. It is common for investment firm to show spectacular gain of a specific period in order lure potential investors. What investors don’t realize is that the big gain shown in the prospectus is captured during a booming period when the fund manager is chasing for some hot stocks in shorter term. This kind of gain does not last, and most probably it will go south when investors buy into the fund.
3. Limited Investment Options in Local Market. There are only a limited number of funds available in the market, in my context, the Malaysia market. Even there is only limited number of funds in Asian countries compare to the US market where there is probably more than 8000 mutual funds out there. Adding to the frustration, there are only a small number of funds that are performing, and if you are limited to only to a few choices, your chance of high return is low to none.
4. Not Enough Information and Research Tools. The single most important reason why investors don’t make money from mutual fund is because lack of information and knowledge of research tools. Average mutual fund investors can only pick funds that are presented to them by sales agents and the only information they can get about the fund is the prospectus that doesn’t show much useful information. Without knowledge of useful research tools and access to information of vast choice of mutual fund out there, one would have no choice but be bounded to limited losing choices.

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What Should I Look For in a Mutual Fund?

A mutual fund is an investment management company that pools the money of investors and hires an investment advisor to invest that money in an attempt to achieve a financial objective. Mutual funds can invest in stocks, bonds, money markets, or other securities, and may be designed for current income, capital appreciation, or capital preservation. A mutual fund must make its purpose clear, and actively pursue that purpose. For instance, a large-cap mutual fund must invest 80% of its assets in large-cap stocks.

When an investor purchases or sells a mutual fund, he or she does not pay the fund’s price at the time of the order. Instead, the price paid is usually calculated at the end of the trading day. To calculate its net asset value, a mutual fund will add up the value of all its assets and divide that figure by the total number of shares of the fund.

There are several items to evaluate when identifying an appropriate mutual fund. First, an investor should seek not only top performing funds, but should look for funds that fit a predetermined investment strategy. An investor looking for growth would not benefit from purchasing even the top performing capital preservation fund. Further, it wouldn’t be beneficial for an investor to own three top performing international funds only to have a portfolio that isn’t adequately diversified.

Once an investor identifies an appropriate type of mutual fund, long-term performance should be closely examined. Many funds have superior performance over one or three year periods. Look for funds that have superior performance over five and ten year periods. Be sure to create an “apples to apples” comparison between funds. For example, compare the performance of a small cap value fund only to that of other small cap value funds. Ideally, look for a fund in the top 25 percent of its category over a three, five, and ten year period.

When shopping for a mutual fund, an investor should also closely examine a fund’s expenses. First, NEVER pay a sales charge (also called a load) to purchase a fund. Also, pay particular attention to something called the expense ratio, which is the sum of a fund’s operating expenses, management fees, and hidden fees (called 12b-1 fees) as a percentage of fund assets. The average expense ratio of a US stock fund is around 1.3 percent. You should be able to identify quality funds with an expense ratio of less than 1%.

Lastly, be sure to examine the manager’s tenure, which is how long he or she has had their job. You don’t want a new money manager gaining experience with your money. Additionally, a new fund manager had nothing to do with the long term performance of the fund, rendering those numbers irrelevant. If possible, look for a fund manager with at least 10 years of experience.

Identifying superior mutual funds is an area where working with an independent fee only financial planner is crucial. Fee only financial advisors (ideally NAPFA members) have a fiduciary obligation to do what is best for their clients. Thus, they will focus on finding top investment options for their clients, rather than on the products that will pay the financial advisor the largest commission.

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning and investment advisory firm in Salt Lake City, Utah. He specializes in developing custom financial plans, implementing investment strategies, and providing ongoing support and service in order to help clients reach their financial goals. He can be contacted at (801) 566-0740 or lon@networthadvice.com. Visit the Net Worth Advisory Group website at http://www.networthadvice.com and read Lon’s blog at http://www.utahfinancialadvisor.blogspot.com.

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Simple Explanation of an Annuity

The Stock Market, Investing, Mutual Funds, CD’s and Bonds can all be overwhelming to a person who has never dealt with investing before. Unless you specifically know, exactly what each thing is and does. Then there is the word Annuity that keeps popping up what is an Annuity. Annuity means the same thing as annual or a reoccurring thing.

A simple explanation of an annuity is that it is a regular payment received from the investment. A reoccurring thing if you want to call it that a reoccurring payment. If you invest in anything involved with money and you receive money from that investment. The annuity is the payment that you make from the investment. You can also look at it as the profit from the investment. A payment at regular intervals is the simplest way to explain an Annuity.

An annuity is a payment that is, set up by you the investor and you receive the payment when you choose. Say you invest in mutual funds this is where you invest in several areas at one time. Then each month the investment pays you oh $200.00 each month. You can set up the Annuity payments to come to you every three months, six months or so on. Then you have an extra $600.00 dollars every three months. Alternatively, $1200.00 every six months these are only examples of what you could receive.

Anything you invest your money into can pay an annuity to you. An annuity can also be, saved over longer periods. Such as a lifetime and an annuity can be, transferred to, someone else if you choose to set it up this way.

It is basically, up to the individual who is investing as to how he or she wants to receive the annuity payments. Or if they would rather have the Annuity payments or full payment to go to someone else (a beneficiary).

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What Are Mutual Funds?

It seems like there are just as many mutual funds now a days as there are stocks. But what are they? What happens when you put your money into a fund?

Well a mutual fund allows you to invest in how well you think particular management company will perform. Basically your money gets pulled together with many other investors’ money and the fund is responsible for managing it.

The fund hires professionals to decide where your money is best invested. Everyone who invested in a specific mutual fund shares the highs and lows of that fund. So if the fund is making money then you as the individual investor are also making money. If the fund loses money then you as the individual investor also lose money.

The major benefit of this kind of investment is that you do not have to learn how to manage your account and you do not have to worry about the curveballs the market may throw. You simply pick a fund which you believe will do a good job investing your money and then move on.

For this you do have to pay some fees such as a management fee, which can possibly hurt you. But if the company makes a high enough return those fees will be too small to worry about.

The important thing to remember is that mutual funds may be great for some people, but others can do better without them. Some people like me want to actively manage their account; other people need it to be done by professionals. It is really different from person to person.

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