By: William Smith
Mutual funds are one of the financial world's most popular investment vehicles, and for good reason.
For a relatively small investment, these funds give individual investors the ability to buy a diverse portfolio of stocks and / or other financial instruments - all in one transaction.
If you have just two or more mutual funds, chances are that you're more than adequately diversified. This means that you don't have to worry about one bad apple (i.e. Enron) destroying your entire investment account.
How Mutual Funds Work
So how do these funds work? Each fund is actively managed by a mutual funds professional. This is someone who has several years of experience analyzing and trading stocks or other securities, probably has an advanced degree, and has worked his or her way up the ladder to what is essentially the top of the money management profession.
The fund manager chooses the securities that the mutual fund owns. These funds can be composed of stocks, bonds, and / or other financial instruments.
The types and balance of securities (i.e. 60 percent stocks, 35 percent bonds, 5 percent cash / money market), and the investment objectives and strategies (i.e. aggressive growth or equity income) are listed in the mutual fund's prospectus.
This way investors know what they are getting into each time they buy new mutual funds.
Mutual funds are split into shares, just like stocks. For example, a fund may own 5,000 shares of Microsoft (MSFT); 10,000 shares of General Motors (GM); 20,000 shares of Alcoa (AA), etc., and be split into 100 million shares itself.
If the net asset value (NAV) of the shares is $1 billion, then each share of the fund would be worth $10. The fund manager buys and sells shares of stock that the fund owns - you, in turn, can buy or sell your shares of the fund, but only at the end of each trading day.
No Load Mutual Funds vs. Load Mutual Funds
So what's the catch? Well, mutual fund managers have to be compensated for their services, so they charge you a fee which is sometimes called a "load."
Essentially, you are paying them to have the heartburn and ulcers associated with watching the stock market eight hours a day, 52 weeks a year, so that you don't have to. Whether or not the fund managers earn their keep depends on how skillful they are, and how the fund's fees are structured.
Load mutual funds charge either front-end loads or back-end loads. Front-end loads charge you a percentage of your initial investment.
For example, if you invest $10,000 each into a pair of front-end load funds with loads of 3 percent and 5 percent, you will only be investing $9,700 and $9,500, respectively. How long will it take your funds to make up the $800 you've lost right off the bat?
Instead of charging you up front, back-end load funds don't charge you a load until you withdraw your money.
These funds are usually a better deal, because the size of the loads usually decreases the longer you leave your money in the fund.
For example, a back-end load fund might have a load of 7 percent if you withdraw your money the first year, with the load going down by 1 percentage point each year, and reaching 0 percent by the eighth year.
Mutual Funds - Just Say No To Your Broker; Buy Direct Instead
Typically, full-service brokers with offices on Main Street only sell front-end load funds. This is because they receive an up-front commission on the sale of these products.
Mutual funds are designed for average investors - you don't need a broker to recommend these funds for you, and you don't need to pay the extra sales charges.
There are hundreds of good, no-load funds that charge only a small annual management fee (which load mutual funds charge in addition to their loads) available directly from fund companies.
Most funds have a minimum investment of $2,500, but this can usually be waved if you commit to regular monthly investments of as little as $50.
Article Source: http://www.find-investment-advice.com
William Smith the author provides additional financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Mutual Funds (All is Free)
Showing posts with label OPTION. Show all posts
Showing posts with label OPTION. Show all posts
Monday, September 29, 2008
Sunday, September 28, 2008
How Mutual Funds Work
By: Joseph Kenny
Mutual funds are good options for American investors to meet their financial goals. These funds offer professional management and diversification of the funds invested. Mutual funds assets in 1990-2000 rose from 1.065 trillion to a whooping 6.965 trillion dollars. 10% Americans owned funds in 1980 and by 2000, the percentage increased to 49%.
What are Mutual funds?
A company dealing in mutual funds invests the money of several investors in bonds, stocks, securities, assets and several other short-term money-market instruments. The combined holdings owned by the mutual fund are known as its portfolio.
When you invest in a mutual fund you become a shareholder of the company. Each share in a mutual fund company is the representation of he investor's proportionate ownership of the fund holdings and the income generated. You earn dividends when the mutual fund company earns a profit, however, your shares will decrease in value if it faces a loss. A professional investment manager does the buying and selling of securities for the growth of the fund.
Types of mutual funds:
Equity funds: These funds involve only common stock investments. They can earn a lot of profit, but are also very risky.
Fixed income funds: They include corporate and government securities. These funds offer fixed returns at a low risk.
Balanced funds: This is the combination of bonds and stocks with a low risk. However, the investment does not earn a lot through these funds.
How it works?
Mutual fund shares can be purchased from the company itself or a broker. There are secondary market investors also, like the New York Stock Exchange. Per share net asset value of the funds or NAV is the price that you pay for buying a mutual fund share. It also includes the shareholder fee that is imposed by the fund, at time of purchase.
The best feature of mutual funds is that these shares are redeemable. You, as an investor, can sell your shares back to the broker. In order to accommodate new investors, mutual fund companies generally create new shares and sell them. They keep selling their shares continuously till they become large.
Investment advisers act as separate entities and are responsible for managing the investment portfolio of the mutual funds. Investing in mutual funds tends to lower the risk factor because they are the result of diverse investments.
Since someone else manages your investments, you need not worry about keeping constant tabs on the investment, though a periodical check enhances your personal book of accounts. Managing funds is the full time job of the fund manager and he is responsible for the performance and health of the investment.
The rate of returns in mutual funds is based on the increase or decrease of the value, during a specific period. Returns of a fund indicate the track record. It is important to remember that the past performance cannot guarantee future results.
As in the case of any investment or business, mutual funds also have risks associated with the returns. It is essential to set your financial goals and requirements, before investing in a mutual fund.
Article Source: http://www.find-investment-advice.com
Joe Kenny writes for SelectLoans.co.uk, a bad credit loans comparison site, visit us today for information on all loan topics including debt consolidation loans and links to leading UK providers.Our Site: www.selectloans.co.uk/
Mutual funds are good options for American investors to meet their financial goals. These funds offer professional management and diversification of the funds invested. Mutual funds assets in 1990-2000 rose from 1.065 trillion to a whooping 6.965 trillion dollars. 10% Americans owned funds in 1980 and by 2000, the percentage increased to 49%.
What are Mutual funds?
A company dealing in mutual funds invests the money of several investors in bonds, stocks, securities, assets and several other short-term money-market instruments. The combined holdings owned by the mutual fund are known as its portfolio.
When you invest in a mutual fund you become a shareholder of the company. Each share in a mutual fund company is the representation of he investor's proportionate ownership of the fund holdings and the income generated. You earn dividends when the mutual fund company earns a profit, however, your shares will decrease in value if it faces a loss. A professional investment manager does the buying and selling of securities for the growth of the fund.
Types of mutual funds:
Equity funds: These funds involve only common stock investments. They can earn a lot of profit, but are also very risky.
Fixed income funds: They include corporate and government securities. These funds offer fixed returns at a low risk.
Balanced funds: This is the combination of bonds and stocks with a low risk. However, the investment does not earn a lot through these funds.
How it works?
Mutual fund shares can be purchased from the company itself or a broker. There are secondary market investors also, like the New York Stock Exchange. Per share net asset value of the funds or NAV is the price that you pay for buying a mutual fund share. It also includes the shareholder fee that is imposed by the fund, at time of purchase.
The best feature of mutual funds is that these shares are redeemable. You, as an investor, can sell your shares back to the broker. In order to accommodate new investors, mutual fund companies generally create new shares and sell them. They keep selling their shares continuously till they become large.
Investment advisers act as separate entities and are responsible for managing the investment portfolio of the mutual funds. Investing in mutual funds tends to lower the risk factor because they are the result of diverse investments.
Since someone else manages your investments, you need not worry about keeping constant tabs on the investment, though a periodical check enhances your personal book of accounts. Managing funds is the full time job of the fund manager and he is responsible for the performance and health of the investment.
The rate of returns in mutual funds is based on the increase or decrease of the value, during a specific period. Returns of a fund indicate the track record. It is important to remember that the past performance cannot guarantee future results.
As in the case of any investment or business, mutual funds also have risks associated with the returns. It is essential to set your financial goals and requirements, before investing in a mutual fund.
Article Source: http://www.find-investment-advice.com
Joe Kenny writes for SelectLoans.co.uk, a bad credit loans comparison site, visit us today for information on all loan topics including debt consolidation loans and links to leading UK providers.Our Site: www.selectloans.co.uk/
Saturday, September 27, 2008
Benefits of Investing in Mutual Funds
By: Fred Peters
The benefits of investing in mutual funds are diverse and varies based on the type of mutual funds you invest in. If you are looking for an investment vehicle to save many over the long run, mutual fund investing is a great option. Depending on your risk profile and the type of results you are looking for in an investment, there will be a fund out there that meets your needs. For long term investments, they are a great ways to save money.
Mutual funds are pooled assets that are managed by fund managers to invest in various kinds of securities. The type of mutual fund will dictate what type of investments the mutual fund managers invest in. They will have a governance model and these managers will abide by such model when investing the funds assets. When you buy into a fund, you are buying a share of the assets fund's assets. You actually become a shareholder of the mutual fund itself.
The first major benefit of investing in mutual funds is the automatic diversification they give you. Many people do not have enough money to invest in all of the securities they would like to individually purchase. They allow you to pool your money so that you can buy many more stocks and bonds. This allows you to buy shares in multiple companies as opposed to only being able to purchase one share of stock.
The second benefit of investing in mutual funds is that you get the benefit of having professional financial advisors managing your money. Few can afford to pay a financial advisor to focus solely on our money. However, when you buy into a mutual fund, these mutual fund managers will professionally manage your money.
Along with diversification and profession money management, they allow you to purchase into securities that you might not be able to afford to buy. For instance, if a certain security would have a $100,000 minimum purchase requirement, you might have trouble coming up with this $100,000. Additionally, you might not want all of this money tied up into this one security. But by pooling your money with other investors, you can now buy a portion of this security.
There are many more benefits of investing in mutual funds. But, the diversification and professional money management are huge. If you are not investing in mutual funds today, you need to consider making them part of your portfolio.
Article Source: http://www.find-investment-advice.com
The benefits of investing in mutual funds are diverse and varies based on the type of mutual funds you invest in. If you are looking for an investment vehicle to save many over the long run, mutual fund investing is a great option. Depending on your risk profile and the type of results you are looking for in an investment, there will be a fund out there that meets your needs. For long term investments, they are a great ways to save money.
Mutual funds are pooled assets that are managed by fund managers to invest in various kinds of securities. The type of mutual fund will dictate what type of investments the mutual fund managers invest in. They will have a governance model and these managers will abide by such model when investing the funds assets. When you buy into a fund, you are buying a share of the assets fund's assets. You actually become a shareholder of the mutual fund itself.
The first major benefit of investing in mutual funds is the automatic diversification they give you. Many people do not have enough money to invest in all of the securities they would like to individually purchase. They allow you to pool your money so that you can buy many more stocks and bonds. This allows you to buy shares in multiple companies as opposed to only being able to purchase one share of stock.
The second benefit of investing in mutual funds is that you get the benefit of having professional financial advisors managing your money. Few can afford to pay a financial advisor to focus solely on our money. However, when you buy into a mutual fund, these mutual fund managers will professionally manage your money.
Along with diversification and profession money management, they allow you to purchase into securities that you might not be able to afford to buy. For instance, if a certain security would have a $100,000 minimum purchase requirement, you might have trouble coming up with this $100,000. Additionally, you might not want all of this money tied up into this one security. But by pooling your money with other investors, you can now buy a portion of this security.
There are many more benefits of investing in mutual funds. But, the diversification and professional money management are huge. If you are not investing in mutual funds today, you need to consider making them part of your portfolio.
Article Source: http://www.find-investment-advice.com
Friday, September 26, 2008
Winning With Mutual Funds
By: Adam Khoo
A mutual fund (called 'unit trust' in Asia) is an investment vehicle that pools money from many individual investors. A professional fund manager invests and manages these funds into stocks, bonds and other securities.
People usually invest in mutual funds because it is offers the advantage of broad diversification (it spreads your money over tens or hundreds of stocks to reduce risk) and professional management. However, do remember that as broad diversification reduces risks, it also reduces return.
First, here is the bad news. If you speak to most people who have invested in unit trusts in Asia (especially Singapore) or in mutual funds, most would report losing money or just earning measly returns of 2%-4%. In fact, in the year 2004, it was reported in the Straits Times that 559,000 Singaporeans lost $680 million by investing their CPF in these funds. By going to the largest unit trust distributor Asia, you can easily calculate that only 6% of unit trusts beat the S&P 500 over a ten-year period. What are the chances of you placing your bet on this 6%? Chances are you would have had lower returns that the index, while still having to pay those hefty sales charges and annual management fees.
How about the US mutual fund market? On average, less than 10% of mutual funds beat the S&P 500 index each year! What's worse is that it is a different 10% each year. Less than 3% of mutual funds are able to beat the S&P 500 Index over a five to ten year period. So again, what are the chances of you beating the market through betting on the right fund? Only 3%! You have better odds at the Black Jack table. The worse thing is that the fund manager gets paid an annual management fee whether or not the fund makes money.
Why is it so difficult for most people to make money in mutual funds? There are four main reasons.
1) High Sales Charges & Management Fees
Most people buy mutual funds through banks and financial institutions at retail prices where there is a sales charge (front load) and high annual management fees (expense ratios).
In Asia, most banks & financial institutions sell unit trusts with a sales charge of 5%-6% and with annual fees of 1.5%-2%. It means that before you even begin, you are down 6.5%-8% on your investment and will be down another 1.5% every year. Your fund must outperform the S&P 500 by 6.5%-8% just to make it worth your while! Again, less than 10% of funds worldwide can achieve this every year and less than 3% can achieve this over five years.
2) Buying the Hottest Performing FundsMost people choose funds based on high short-term returns. These are the funds that are normally pushed and advertised by financial retailers. They feature impressive and enticing returns like 'This fund was up +65% in the last six months'.
The fact is that the best short-term performing funds tend to also be big losers in the subsequent years and long term. Why? Because these funds tend to be invested in hot stocks or hot sectors where the stocks have been rising rapidly and fund managers buy, riding on the momentum. That is why they post very spectacular returns. However, strong buying activity tend to push these stocks to be overvalued and sure enough, the stocks will come crashing down in the next few years. Mutual funds that consistently beat the S&P 500 tend to be invested in non-hot sectors and do not post spectacular short-term returns.
3) Limited Selection of Unit Trusts Locally
If you are in Asia, then you are normally exposed to only a limited number of unit trusts. A check with fundsupermart.com (the largest Asian unit trust distributor) shows that there are just about 300 funds available here compared to over 8,000 funds in the US market.
When I made a search on the Top Performing Fund sold locally (year 2005), I was presented with 'Fidelity America USD' with a 10-year annualized return of 11.27%. (Recall that the S&P 500 returned 12.08% a year). So, even the top-performing fund couldn't beat the S&P 500 after deducting expenses & fees!!
4) Lack of Research Knowledge, Data & Tools
The single most important reason why investors lose money in mutual fundsis because they don't have the knowledge or necessary information to search for the top 3% of consistent performing funds at the lowest costs. Investors tend to buy on the advice of their bank managers, facts from the fund fact sheet or prospectus which does not provide enough information to select the right fund.
Article Source: http://www.find-investment-advice.com
A mutual fund (called 'unit trust' in Asia) is an investment vehicle that pools money from many individual investors. A professional fund manager invests and manages these funds into stocks, bonds and other securities.
People usually invest in mutual funds because it is offers the advantage of broad diversification (it spreads your money over tens or hundreds of stocks to reduce risk) and professional management. However, do remember that as broad diversification reduces risks, it also reduces return.
First, here is the bad news. If you speak to most people who have invested in unit trusts in Asia (especially Singapore) or in mutual funds, most would report losing money or just earning measly returns of 2%-4%. In fact, in the year 2004, it was reported in the Straits Times that 559,000 Singaporeans lost $680 million by investing their CPF in these funds. By going to the largest unit trust distributor Asia, you can easily calculate that only 6% of unit trusts beat the S&P 500 over a ten-year period. What are the chances of you placing your bet on this 6%? Chances are you would have had lower returns that the index, while still having to pay those hefty sales charges and annual management fees.
How about the US mutual fund market? On average, less than 10% of mutual funds beat the S&P 500 index each year! What's worse is that it is a different 10% each year. Less than 3% of mutual funds are able to beat the S&P 500 Index over a five to ten year period. So again, what are the chances of you beating the market through betting on the right fund? Only 3%! You have better odds at the Black Jack table. The worse thing is that the fund manager gets paid an annual management fee whether or not the fund makes money.
Why is it so difficult for most people to make money in mutual funds? There are four main reasons.
1) High Sales Charges & Management Fees
Most people buy mutual funds through banks and financial institutions at retail prices where there is a sales charge (front load) and high annual management fees (expense ratios).
In Asia, most banks & financial institutions sell unit trusts with a sales charge of 5%-6% and with annual fees of 1.5%-2%. It means that before you even begin, you are down 6.5%-8% on your investment and will be down another 1.5% every year. Your fund must outperform the S&P 500 by 6.5%-8% just to make it worth your while! Again, less than 10% of funds worldwide can achieve this every year and less than 3% can achieve this over five years.
2) Buying the Hottest Performing FundsMost people choose funds based on high short-term returns. These are the funds that are normally pushed and advertised by financial retailers. They feature impressive and enticing returns like 'This fund was up +65% in the last six months'.
The fact is that the best short-term performing funds tend to also be big losers in the subsequent years and long term. Why? Because these funds tend to be invested in hot stocks or hot sectors where the stocks have been rising rapidly and fund managers buy, riding on the momentum. That is why they post very spectacular returns. However, strong buying activity tend to push these stocks to be overvalued and sure enough, the stocks will come crashing down in the next few years. Mutual funds that consistently beat the S&P 500 tend to be invested in non-hot sectors and do not post spectacular short-term returns.
3) Limited Selection of Unit Trusts Locally
If you are in Asia, then you are normally exposed to only a limited number of unit trusts. A check with fundsupermart.com (the largest Asian unit trust distributor) shows that there are just about 300 funds available here compared to over 8,000 funds in the US market.
When I made a search on the Top Performing Fund sold locally (year 2005), I was presented with 'Fidelity America USD' with a 10-year annualized return of 11.27%. (Recall that the S&P 500 returned 12.08% a year). So, even the top-performing fund couldn't beat the S&P 500 after deducting expenses & fees!!
4) Lack of Research Knowledge, Data & Tools
The single most important reason why investors lose money in mutual fundsis because they don't have the knowledge or necessary information to search for the top 3% of consistent performing funds at the lowest costs. Investors tend to buy on the advice of their bank managers, facts from the fund fact sheet or prospectus which does not provide enough information to select the right fund.
Article Source: http://www.find-investment-advice.com
Wednesday, September 24, 2008
Earnings Matter: S&P and Stock Market Investing
By: Bill Byrnes
The S&P 500 is up about 7.5% thus far this year. That's a good return for just over six months. Will it keep going up? Consider this. The earnings of the S&P 500 companies are expected to grow by about 5% in 2007, according to a leading Wall Street brokerage firm. That means if the market was fairly valued at the beginning of 2007 and there were no big changes as to how investors think about the market, the S&P should only go up by 5% in 2007. Hence, game over. Come back next year.
But wait! Let's examine each of the above assumptions. Was the S&P fairly valued at the beginning of 2007? Well, for the 12 months ended June 2007, it's up 22%, so it had a pretty good run in the second half of last year and considering that 2006 was the fourth year of the current economic expansion, it's likely the S&P was around fair value at the beginning of 2007. Okay, but doesn't the market discount the future? And aren't all the Wall Street analysts talking about 2008 earnings? Yes to both (although December 31, 2008 is 18 months away, so maybe there's some uncertainty). 2008 S&P earnings are projected to grow by 7.5%. Amazing, the same percentage the S&P is up this year. I could end this report right now but I think it's a coincidence.
I don't know how far into the future investors look or whether they're looking at 2007 or 2008 earnings. Either way, though, there's not much of a case to be made for further gains in the S&P unless theress multiple expansion. (The P/E multiple has to expand when stock prices grow faster than earnings.)
So, will P/E multiples expand and the S&P continue to go up? Depends upon what makes multiples expand. Common factors include accelerating earnings growth (I don't think 5% to 7.5% qualifies), an improving economic outlook (balance of trade, energy prices, inflation), or a reduction in interest rates. The last one's a two edge sword. If interest rates fall (the Fed cuts rates) because of declining inflation expectations, that's bullish (along with an expanding economy that's the goldilocks scenario). If the Fed cuts rates because the economy is slowing down, that's not good. A Fed cut for good reasons appears unlikely.
Thus, the S&P is likely to be flat to down over the next few months, until earnings growth is ready to take it higher.
Article Source: http://www.find-investment-advice.com
Bill Byrnes is co-founder of MUTUALdecision, a website providing mutual fund data, and the author of the MUTUALdecision Blog. He's been an investment banker with Alex. Brown & Sons and a Finance Professor at Georgetown University. He's been CEO, chairman and served on the board of directors of several public and private companies. He holds MBA and JD degrees and is a Chartered Financial Analyst with over 30 years experience in the investment industry.
The S&P 500 is up about 7.5% thus far this year. That's a good return for just over six months. Will it keep going up? Consider this. The earnings of the S&P 500 companies are expected to grow by about 5% in 2007, according to a leading Wall Street brokerage firm. That means if the market was fairly valued at the beginning of 2007 and there were no big changes as to how investors think about the market, the S&P should only go up by 5% in 2007. Hence, game over. Come back next year.
But wait! Let's examine each of the above assumptions. Was the S&P fairly valued at the beginning of 2007? Well, for the 12 months ended June 2007, it's up 22%, so it had a pretty good run in the second half of last year and considering that 2006 was the fourth year of the current economic expansion, it's likely the S&P was around fair value at the beginning of 2007. Okay, but doesn't the market discount the future? And aren't all the Wall Street analysts talking about 2008 earnings? Yes to both (although December 31, 2008 is 18 months away, so maybe there's some uncertainty). 2008 S&P earnings are projected to grow by 7.5%. Amazing, the same percentage the S&P is up this year. I could end this report right now but I think it's a coincidence.
I don't know how far into the future investors look or whether they're looking at 2007 or 2008 earnings. Either way, though, there's not much of a case to be made for further gains in the S&P unless theress multiple expansion. (The P/E multiple has to expand when stock prices grow faster than earnings.)
So, will P/E multiples expand and the S&P continue to go up? Depends upon what makes multiples expand. Common factors include accelerating earnings growth (I don't think 5% to 7.5% qualifies), an improving economic outlook (balance of trade, energy prices, inflation), or a reduction in interest rates. The last one's a two edge sword. If interest rates fall (the Fed cuts rates) because of declining inflation expectations, that's bullish (along with an expanding economy that's the goldilocks scenario). If the Fed cuts rates because the economy is slowing down, that's not good. A Fed cut for good reasons appears unlikely.
Thus, the S&P is likely to be flat to down over the next few months, until earnings growth is ready to take it higher.
Article Source: http://www.find-investment-advice.com
Bill Byrnes is co-founder of MUTUALdecision, a website providing mutual fund data, and the author of the MUTUALdecision Blog. He's been an investment banker with Alex. Brown & Sons and a Finance Professor at Georgetown University. He's been CEO, chairman and served on the board of directors of several public and private companies. He holds MBA and JD degrees and is a Chartered Financial Analyst with over 30 years experience in the investment industry.
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