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Archive for the ‘Mutual Funds’ Category

Outlined below are some of the advantages and disadvantages of mutual funds. Every investment has advantages and disadvantages. But it’s important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances.

Advantages

For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:

Professional Management:

Professional money managers research, select, and monitor the performance of the securities the fund purchases.

Diversification:

Diversification is an investing strategy that can be neatly summed up as “Don’t put all your eggs in one basket.” Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.

Affordability:

Some mutual funds accommodate investors who don’t have a lot of money to invest by setting relatively low pound amounts for initial purchases, subsequent monthly purchases, or both.

Liquidity:

Mutual fund investors can readily redeem their shares plus any fees and charges assessed on redemption at any time.

Disadvantages

But mutual funds also have features that some investors might view as disadvantages, such as:

Costs despite Negative Returns:

Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive – even if the fund went on to perform poorly after they bought shares.

Lack of Control:

Investors typically cannot ascertain the exact make-up of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.

Price Uncertainty:

With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock’s price changes from hour to hour – or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund’s net asset value, which the fund might not calculate until many hours after you’ve placed your order.

Making any sort of investment involved a certain amount of risk so it is always wise to seek the advice of a professional before making any decisions.

Consider this a wake-up call if you assume the best mutual funds for 2011 and years to come will again be bond funds vs. stock funds. Millions of people own these funds and many are wondering which are the best funds to own in these times of high uncertainty. Here we make comparisons and discuss some things you may never have thought about.

With the year 2011 approaching a trend in mutual funds became very clear. Investors were pulling money out of stock funds and scurrying to the perceived safety of bond funds. The reason: bond funds had a good track record, while stock funds had beaten investors up big time…TWICE in the “lost decade” from 2000 to 2010. Going forward it could be a big mistake to assume that the best mutual funds for 2011 and beyond will again be those that invest in fixed-income securities called bonds. Let’s take a look at the nature of both types of funds.

Bond funds are often labeled as INCOME funds because their objective is to earn relatively high interest income for their investors by investing in fixed-income securities. Their second objective is conservation of principal or price stability of fund shares (safety). Stock funds are often called EQUITY funds because they invest your money in equities (stocks) in pursuit of higher total returns… with a higher degree of risk. You make money here when stock prices go up, and secondarily from dividend income. Most people have learned that the value or price of their equity funds will fluctuate, going both up and down. Many haven’t learned that bond fund values fluctuate as well, even though they have an OBJECTIVE of relative price stability.

Few folks pay close attention to their mutual funds, but most know whether they are making or losing money. For example, few would know how or why they made a total return of 10% for the year in a bond fund when it only paid 3% or 4% in dividend (interest) income. Where did the rest of the profits come from? Very simply, the price of their fund shares went up over the year as interest rates in the economy fell. This has been the basic trend for years as interest rates have fallen to historical lows. As a result of falling rates the fixed-income securities in bond fund portfolios have become more attractive to investors in general – who have bid bond prices up to higher and higher levels in the open market.

In the bond funds vs. stock funds debate you could say that the former are more predictable. If the economy remains lackluster and interest rates continue to fall, bond funds could well be the best mutual funds for 2011 and in future years. On the other hand, these funds are even more predictable on the down side. If interest rates go up significantly virtually all bonds in existence will become less attractive and lose value. So will the funds that invest in them. This is one of the only iron-clad rules in investing. Another is that every investment has risk… and there is considerable risk for the unsuspecting investor in income funds when interest rates are at or near historical lows. Plus, there is little upside profit potential left. After all, how much further can interest rates fall?

Equity funds, like the stock market, have always been unpredictable from year to year. That’s why these funds are required to warn investors about the risks involved when investing in them. On the other hand, over the long term they have produced profits (returns) on average of about 10% a year vs. 5% to 6% returns for income funds. Some years they have produced returns of 30%, 40% or more for investors. Another advantage is the wide variety of equity funds available to average investors: general diversified funds, international, emerging markets, and specialty funds that specialize in the gold, real estate, and natural resources sectors to name a few. Not all equity funds tank when the U.S. stock market gets knocked for a loop.

In the best mutual funds for 2011 debate of bond funds vs. stock funds here are my final thoughts for you. The average investor should invest in both. You can do this and cut your overall risk if you do the following. Avoid long-term income funds because they are very sensitive to higher interest rates. Go with intermediate-term funds for less risk. In the equity funds department diversify like crazy by including international and specialty funds in your portfolio. General diversified equity funds should be your primary holdings, but mix it up a bit. Funds that specialize in the likes of gold, real estate, and oil stocks can sometimes buck the trend in a lousy stock market.

You don’t need to find the best mutual funds for 2011 and beyond in either category to be successful. You need the best collection of bond funds and stock funds that will bring your overall portfolio risk to a level you can live with.

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Mutual funds are a form of investment that rely not on one person’s efforts, but a group of people, hence the name. The investors mutually enjoy gains or suffer losses. A mutual fund is managed professionally, and involves stocks, securities, bonds, or other such things, but does not involve investing in the stock market directly. It is a “cash” account, which means that an investor’s assets can be liquidated, or cashed out, quickly.

The manager of the fund actually does the investing, and the fund is supervised by a board, or by trustees, to ensure that it is being run well and properly.

Unfortunately, not everyone that runs an investment fund does so with pure intentions. Bernard Madoff, of course, was convicted and sent to prison for numerous charges pertaining to fraud, and financially devastated investors were left in his wake. Although he ran a hedge fund, which is entirely different, it gave those who invest in mutual funds cause for worry.

The good news is that mf’s involve government regulation, as well as constant supervision. Reports are required, and accountability is a must. Of course, a mf is an investment, so it can gain or lose money, but that occurs with any form of investment. A mutual fund is actually quite safe, and can generate revenue for its investors.

Not all mutual funds are necessarily wise to invest in, especially those that rely heavily on the mortgage market, which is taking a major hit right now. With due diligence before the decision to invest, you can find a mutual fund that’s right for you, and that isn’t setting itself up for failure, as happened with the The Select High Income Fund, which lost almost 76% in 2008. It invested in the mortgage industry.

Another factor in the decision to invest in a mutual fund should be costs. Investors are expected to share in the cost of running that fund, known as an expense ratio. This should be investigated thoroughly before signing anything.

A mutual fund can definitely be a wise thing to invest in, but as with anything else, everything must be checked out, from the health of the fund, to the compensation your broker will get. You’ll also want to know up front if the mutual fund is conservative, or high-risk. You should obviously invest in a fund that matches your own financial tastes. Again, loss is a risk you assume when investing, but if you invest a conservative fund, you’ll be minimizing your exposure as much as you can.

As long as you fully check out a fund before signing up, you’ll be minimizing the chances of having an unpleasant “surprise” later on down the road. Keep a constant eye on your fund, and don’t be afraid to ask questions of the fund manager.

If you find that your questions aren’t being answered, or if things just don’t “feel” right, it may be time to invest in something else. If, however, you fund that things are being managed well, and that you’re enjoying gains, then continue to invest while maintaining a close eye on the fund.

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The term mutual fund is quite self-explanatory in that it suggests a collection of funds from more than one individual, which is then invested in shares and bonds. Therefore, instead of unit investors, many investors mutually invest their wealth.

However, the very advantage of a mutual fund can be a bane. Collective investment in mutual funds means that the cost is shared among the investors proportionately. So is the profit, or loss. But in case of a market crash (like the mutual fund scandal of 2003) everyone who has invested in it will suffer great loss.

The average market speculation suggests that investing in mutual funds result in poor returns.

Also the recent hike in oil prices has put a prominent question mark on oil mutual funds. Analysts predicted soaring oil prices post the Iraqi invasion of Kuwait. The collective finds of Morningstar groups saw an 11% rise at the year end. Another company that gained up to 13% is The Fidelity Select Energy Services Fund.

Therefore, although the common man continues to complain about the rising oil prices, investing in oil mutual funds is a good option once you have surveyed the market carefully.

If you are going to buy an oil well (seeking revenue when prices rise further) it is advisable to do so mutually due to the high-capital investment required for such an asset. Oil mutual funds in Big Oil is a good idea as well since it ties together seven of the largest oil companies. It also takes better care of the risk factors due to being such a large concern.

When participating in oil mutual funds realize one thing: the market fluctuation of such an investment has little to do with the business itself. Oil is a commodity that will have a high and steady demand in the world market till alternative energy resources become main stream. A mutual fund that holds oil stocks and has a good overall performance record is a good investment opportunity.

The rising market price of oil has generated more investment in oil mutual funds as a whole. The United States Oil Fund (USO) was considered a high-risk investment until a 30% rise in oil price in the previous year.

Every investment bears its own set of risks. The same goes for a mutual fund.

Due to excess demand for cash in the economy, if bonds are sold off quickly, then bond prices will fall due to its excess supply in the market. This will reduce the level of investment in the economy, which will lead to risk of bankruptcy. This ultimately results in a credit-risk situation (where the bond-issuer is unable to repay the investors). Mutual fund investments in foreign securities bear the risk of a currency rate fall. Since all mutual funds have a fund manager, profitability from the investment is dependent on his ability to analyze the market correctly and carry out the functions accordingly.

However, oil mutual funds seem to be good investment opportunities at present with the world crude oil prices soaring steadily.

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Over the last decade, dividend mutual funds have generated high returns. In fact, when closely examined, the performance of this investment has a large effect on the funds of companies.

Investors, therefore, search for high dividend mutual funds before they choose specific investments.

But how do they do this? The answer is simple. They need to determine the high dividend funds among the rest.

One needs a keen eye to find these in the stack. Read on so that you would know what kind of qualities you are looking for in an investment.

1. In an emerging market, you should look out for mutual fund investing. This generally means that there is a ten year percentage increase on dividend funds.

There is less risk involved in this setting. Jump into the opportunity if you can because the rewards will be worth it in the end.

2. Closely look into the performance of the company that you are investing in. If this is a commodity market, we suggest that you look at the growth percentage not only for this year but also in the previous years.

If it has a steady direction – and that is constantly growing, then this means that the dividends are stable here and can probably sustain its function for the next ten years.

3. Look for high yield dividends. The high yield dividends mutual funds must be very diverse. If yes, then this means that the returns are net assets and generate small risks for the investor.

You can also look into the energy based fund with lower payouts when compared to the rest.

Just remember that whatever factor you are looking at, you need to also check how it performed in the previous years. This can tell you whether the company is stable or not.

4. If you can have access to the assets of the company that you are thinking of investing in, then check these out. The dividend rate must be more than eighteen percent to qualify as top performers in dividend mutual funds.

If you want to concentrate on gold investments and capital preservation, then check the returns and dividends of such companies.

If they give you the figures that you are looking for, then you are in luck. Just make sure that the dividend rate of the dividend mutual funds are worth investing in.

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If you want to invest money for a better future and don’t want to constantly monitor your money, 2011 is as good a time as ever to invest money in funds. In fact, mutual funds offer most people the best investment options out there because they do the day-to-day money management for you. In the simplest of terms, here are some tips to help you invest money and find the best funds to keep yourself out of trouble in 2011 and beyond.

Keep in mind that you don’t invest in mutual funds to speculate in stocks and bonds. You invest in them because funds were designed as a way for millions of average folks to get a piece of the action in stocks and bonds with professional money managers making the investment decisions. Your job is to simply decide how much money to invest in each of the 3 basic types of funds, and then to pick the best investment options or funds in each area to fit your risk profile. Here are some tips, because 2011 and beyond could be a little tricky.

In order to really make your money grow over the years you need to invest in stocks. The average person’s best investment options in this department are equity (stock) funds. Equity funds range from aggressive growth funds that pay zip in dividends but can go up like a rocket in good economic times… to blue-chip equity-income funds that invest your money in large corporations that pay steady dividends with milder fluctuations in stock price. Since the higher a stock (fund) price soars the harder it falls, for 2011 and beyond I’d invest my stock money with the more conservative equity-income funds. It’s nice to get a 2% or 3% yearly dividend when you can hardly find 1% at the bank.

The second basic type of mutual funds is bond funds, and for 98% of the people they represent the best investment options for putting money into bonds. Millions of Americans invest money in bond funds, but few understand bonds, which is what these funds invest your money in. Here we keep it simple and go to the bottom line. If you want details, I’ve got a number of bond articles that go there. Simply said, you should invest money in bonds (funds) because they pay higher interest income than you can get elsewhere, and tend to balance out your overall investment portfolio.

Traditionally, bond funds can offset some losses from stock investments because they have often tended to be one of the best investment options when stocks were out of favor and in the dumps. In the bond department you can be aggressive or more conservative as well. For 2011 and beyond I would suggest you go conservative again because our economy and interest rate situation are precarious at best. Interest rates are near record lows and have been falling since the early 1980s. The economy is still struggling to grow with high unemployment.

What this means to you when you invest money in bond funds: when interest rates head back UP, SOME bond funds won’t be your best investment options. But remember, you need to invest money and keep it invested for the longer-term. You are not trying to speculate, but still need some money in these funds for balance. Your best investment in the bond department for 2011 and beyond: intermediate-term bond funds vs. long-term funds. The latter are too risky and will get burnt when interest rates go back up.

That takes us to the third and last of the basic investment options for funds and investing in general. Money market funds are very safe investments and pay interest income based on prevailing interest rates, which were historically low heading into 2011. Don’t avoid these safe investments because they have one redeeming characteristic other than safety: when rates go back up the interest they will pay will automatically follow suit.

So, yes you should invest money in mutual funds, now and in the future. The year 2011 will present challenges, but where else can you invest in stocks and bonds with professional money management working for you at a modest cost? Your objective should be to invest money and make the best of it. Your best investment options as an average investor haven’t basically changed much in over the past 40 or so years. You just need to focus on where to invest your money in funds so you can stay out of serious trouble when times are rough. Over the longer term, that’s the best you can do as an investor.

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