A Few Basics About Mutual Funds

Mutual Funds are just a collection of stocks and bonds, and instead of each investor owning bonds or stocks of a particular company, they own a portion of a whole portfolio derived from all sorts of financial firms. Basically, you own multiple financial instruments from multiple firms in a mutual-funds investment. The advantage to this is that it spreads your overall risk to several investments, instead of on a single one in more conventional methods. Also, it is more liquid compared to handling individual bonds and stocks, meaning that you have the option of converting your investments into cash at any time you want.

Now, let's delve into the finer aspects of mutual funds. First, we should know about the various types available to us: 

• One type of a fund is the closed-end fund. In this, the firm offering closed-end funds issues a set number of shares to the public but only once, which is the initial public offering. Also, the shares can't be liquidated on demand, reducing the investor behavior solely to trading. This adds a demand and supply dimension to the fund shares market.


• Another type of a fund is the Open-End fund. In this, the firm does not offer a set number of shares, rather new shares can be issued as the company feels fit. So, it allows the investor to get the shares directly from the fund provider, rather than just trading it and getting it through another investor; which acts as an advantage, as the price of issuing new shares reflects the performance of the fund. So, the investor can look at the prices of new stocks and better decide upon the investment, which he cannot do if he is investing in a closed-end fund.


• We can further divide Open-End funds into Load, and No Load. A load is another word for sales commission. So basically, this means that if an investor owns an Open-End fund with load, he will have to pay a commission on the shares owned by him to the firm. No-Load mutual funds have no such expense associated with them, which is why they are preferred by investors as they have a relatively low cost of ownership.

So, now we know the basic types of a mutual-fund investment, and have some basic information about how they work. But the question now arises, why should you choose mutual funds offered by a firm instead of managing investments yourselves? Well, the answer to that is, as mentioned before, your risk is lower in this type of investment than in other options. Also, the firms offering these are dedicated to the job, and have all the time in the world to manage your portfolio; which you cannot do just by yourself. So, it is better to invest through mutual funds than through regular financial options. For inexperienced investors, this is especially true as the low risk of loss associated with it gives a solid platform for the investor to start off in the business world.

If you need further information about mutual funds, please visit: mutual funds and choose mutual funds.

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Investors Behaving Badly

n 16 years of advising hundreds of clients on their personal investment and financial planning, I've yet to find a single prospective client who could provide me a concise description of a well-structured investment process which they follow consistently. Rather I've heard "I follow Money Magazine recommendations" or "Jim Kramer's trading strategies work for me". Neither of which qualify for consistent or well-structured, both of which qualify for ignorant and futile.

The fact is without a solid foundation - you'll never have a successful investing experience. A recent Dalbar study (March 2011) using analytics and data from Lipper and the Investment Company Institute proved once again that investors do far more harm to themselves than they realize. The data showed the average equity mutual fund INVESTMENT returned 9.90% for the period 1991 to 2010. The average INVESTOR enjoyed a return of just 3.80% over the same time period.

How could that be you ask? Simple. Investors do the wrong thing at the wrong time. The sell low and buy high. They chase yield over total return. They speculate rather than invest. They watch too much CNBC (everything on CNBC is short term in nature - not long term) and react to news too often. They make a slew of bad investment decisions, and do so primarily based off fear and greed - two incredibly powerful emotions.

Every year Dalbar puts out that same study, each year the gap is roughly the same though the numbers do change slightly. This illustrates that as investors, we're simply not wired to "get it right". The fact is all you had to do was buy the average equity fund and put it in a shoebox (so to speak) to enjoy those near double-digit returns for the last 20 years. Instead the only thing consistent about the average investor strategy is it reduces investment returns.

It's ironic how most investment strategies will assume an 8% rate of return, yet the average equity investor scarcely earns half that amount as proven by Dalbar. So we assume more, get less, then wonder what happened.

I'm here to tell you it doesn't have to be that way. You don't have to be behind the curve financially in retirement, you don't have to settle. You DO however need a sound investment process consistently applied throughout your investment lifetime.

Whether you're a DIY investor, or prefer using an expert for help, you need to have a basic mindset in place starting with the hierarchy of decisions. The fact is most investors focus on the LEAST important things when they should be focused on the MOST important things.

Here's a quick list of what really matters to you when it comes to investment strategy and asset allocation:

#1 What is the time horizon of your investment strategy? By far the most important investment planning decision is the time horizon of your strategy. This is most appropriately determined by expectations of future cash flow needs. However, just because you retire in 10 years doesn't mean your plan stops. To the contrary, your investment plan should continue on for decades as you enjoy retirement.

#2 What asset classes will be considered for your plan? Stocks, bonds, cash, and commodities are the primary asset classes. But will you utilize large stocks, international stocks, gold or emerging market bonds? There are four major asset classes, yet dozens of sub-asset classes. Take time, do your research. The important part is selecting major asset classes which will allow you to effectively diversify your portfolio.

#3 What asset allocation will be selected for your investment portfolio? Nearly tied with asset class selection on the priority list is the mix of those asset classes into an appropriate asset allocation plan. The percentage of stocks vs. bonds and cash etc. is going to determine over 90% of your investment portfolio returns - NOT what stock you pick or when you trade the markets. There are several tools online which are efficient at creating an optimized portfolio (meaning the best mix of asset classes to meet your financial needs); however, there are always intangibles and meeting with a qualified fee only financial advisor to create your asset allocation can be worth it's weight in gold!

#4 Who's going to manage the asset classes you selected in step 3? The fact is the overwhelming majority of investors have no business trading stocks and bonds. It just doesn't make sense on so many levels. Rather it's far more prudent to select high quality investment managers of mutual funds and exchange traded funds (ETF's). There are great analytical tools available online including data from Morningstar and Lipper, yet this part gets far more technical and tricky than the first 3 steps. Fortunately, it's the least important of the four steps!

Can you invest successfully on your own? Yes - it is possible, yet the odds of success are clearly against the average investor. History has shown us that it's incredibly hard to do so and the costs of failure can be staggering. If you do decide to invest on your own start with these four simple steps, with the appropriate importance placed on each one.

If you hire a professional advisor - which I recommend for most investors - I highly endorse NAPFA (National Association of Personal Financial Advisors) registered financial advisors nationwide. With NAPFA you'll find completely unbiased and independent advisors who truly have your best interests at heart.

Greg Phelps is President of Investment Portfolio Advisors and a Fee-Only CERTIFIED FINANCIAL PLANNER (TM) in Las Vegas and Henderson, Nevada. With 16 years of financial industry experience, Greg is an accomplished financial advisor, author, and speaker. Through his financial consultant positions with two of the largest investment banking firms on Wall Street - Morgan Stanley and Goldman Sachs, as well as serving as the Regional Manager of Wealth Management and National Manager of Fiduciary Advisory Services at the 5th largest accounting firm in the country - RSM McGladrey, he's consistently and ambitiously improved his skill and knowledge in the financial planning field. Learn more about Greg's Las Vegas investment advisor practice here.

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How To Make Wealth With Investing In Mutual Funds

Basically, it refers to the idea of pooling a collective investment from different investors with one basic goal and that is to earn profits through proper investing. Basic these includes a collection of bonds and securities investments, which can also be combined with project funds in the stock market, bonds, and other related investment opportunities. Most funds are audited and managed by financial experts in order to increase the resources invested in terms of earnings and earning capacity. But did you know that you can actually make wealth and build a sizeable nest egg when you are able to properly invest in mutual funds?

To begin with, each and every investor involved in the mutual fund has to provide his or her own share of financial capital just like any other investors involved in the fund. This allows the investor the right to have a piece of the profit accumulated within the period of investment and also if the mutual fund is either put up for sale or it incurred heavy losses due to market variation or fund mismanagement. More often than not, these are the most sought after type of investment in the market and there are also a sizeable number of investors who have their own portion of investment in these which see this opportunity as an advantage for them to make their money grow which in the process, can provide them a steady source of income during the payout stage. In addition to that, one of the main reasons why most people choose to invest in mutual funds is due to its flexibility to adapt to changing market which makes it a lot easier for investors to achieve their financial goals.

You can enjoy plenty of benefits when you choose to invest your money in mutual funds. For starters, investors do not need to worry about the mismanagement of funds since mutual funds are typically managed by financial experts and with the help of their experience in the investment market; they are able to explore different investment options that can significantly be part of the growth of the investment. With the help of financial experts monitoring your investment, there is nothing for you to worry about and you can just sit and wait for your investment to start earning profits.

Another major benefit investors can enjoy from venturing in mutual funds is the low risk nature involved in mutual fund investment. One of the main reasons why there is such a low risk for investment is due to the fact that financial experts see to it that the funds will be invested not just on a single asset which means that if one investment option fails, there are still other assets available where investors can recover their losses. This is because these funds are evenly distributed on different types of securities and other investment options making it virtually impossible for investors to risk their money unless all investment options fail. As compared to when you put all your money on a single investment vehicle, the failure of that particular investment option can certainly bring all your money down the drain.

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Succeed When Diversifying

Mutual fund means the pulling together of investors money and investing them in a variety of asset classes such as equities, money market funds and bonds. Many banks are offering it to investors and it is a better way to invest than putting all the excess money in a savings account. It is managed by fund managers whose goal is to produce profits for the investors. The portfolio's terms and objectives should be stated in the proposal. The strength of the fund comes from the number of investors who invested in it.

Many investors mean that fund managers have more money to put in different types of investments. Shareholders are given the chance to own several assets though they have minimum capital, which they may not be able to do if they invest by themselves. They pay their financial managers' fee together, which is cheaper than paying individually. It works to their advantage if they are not adept about the market conditions and do not have time to monitor the market. They can save money as well by selling and buying assets in large quantities in one transaction only. Investors own some units in the mutual fund which they share the gains as well as losses among themselves. Units can be bought and exchange to cash based on their net asset values any time they need them.

Before investing in mutual fund, it is important to know its disadvantages too. There is no guarantee that fund managers will perform well all the time especially if they manage large amount of investments. There are fees to be paid to the financial managers and in issuing investors' statements, as well as taxes. Every time they sell assets capital gains tax will be present, though it can be minimized by choosing funds which are tax sensitive. The higher the returns from funds the higher the risks involved, it is true to all kinds of investments as well.

There are many types of funds which have been derived basically from stocks, money markets, and fixed- income. One of these funds is bond fund which provides regular income as replacements for investors' salaries when they retire. Next is balanced fund, it is a mixture of stocks and fixed- income. Followed by equity fund, it invests in stocks and aims to achieve long-term growth of capitals while providing some amount of income. There is specialty fund which is composed of socially responsible fund, regional fund and sector fund, all of these funds concentrate in a specific area of the economy.

Money market fund on the other hand is a short-term kind of investment which concentrates mostly on treasury bills and cash deposits. Last in the list is index fund which only copies the market returns and rules that fund managers can't compete with the market. Investors should know how to read mutual fund table updates which are found mostly in newspapers and even on the internet. Fund performance should be viewed in a long-term basis for example three to ten years because profits may fluctuate every year. The investors' appetite for risks and their investment goals are two of the most important factors to consider before investing in mutual fund.

For more information about mutual fund please visit http://mutualfundchoice.com/

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An Ideal Guide To Investments

Liquid Funds, as the name implies, are investments that can be easily converted to cash. It also denotes benefit that is as good as hard money. This is primarily important for those who want to earn profits by quick selling their assets or want to switch investments at short notices. These Funds are quite similar to debt funds or mutual funds which can be redeemed in very short period of time, as less as a day. Liquid funds allow options for purchasing all investments that can be easily liquidated in the existing market. These funds are employed only in safe, short-term debts making your hard-earned money invulnerable to elevated risks.

Mutual Funds are short-term investments that mature within a year. The period of maturity ranges from a quarter (3 months) to a year offering investors a golden opportunity to reap benefits without having to invest their assets over an elongated time span. Also, in case of requirement, the investors can access their funds, with the company charging no penalty fee.

Liquid funds are normally used as substitute to short-term fixed deposits. The minimum amount that can be invested in liquid funds is as small as 1000/- and require a redemption time of barely 24 hours. As Funds have short maturity periods, they usually invest in money market instruments, treasuries and short-term corporate deposits. A Mutual fund guarantees better Funds and low-interest rate risk because they have the restrictions of possessing shares at maximum 10% of the current market value. Some of the prominent features of these funds are:-

• No entry and exit load
• Very low annual fee
• Variable investment amount depending upon the scheme
• Grand tax benefits
• Easy liquidation which rightfully glorifies the name
• An average return of 8 percent per annul over investments
• Less susceptible to market risk owing to maximum 10% investment shares

Further, if the investor gains his money prior to the lock-in time (minimum time frame within which an investor cannot redeem his assets), the liquid fund charges an exit load. Exit load is the cost payable to the company when an investor withdraws his money. But normally, the lock-in period is considerably small, less than 10 days, making liquid funds a superior investment option.

Liquid funds have a right hand over Short-term deposits. This is because the returns from short-term investments are taxable while those from Liquid funds are non-taxable, rendering funds more eye-catching than short-term investments.

To know further about boons and banes of Mutual Funds or visit Taurus Mutual Fund.

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Advantages of Having A Mutual Fund For Investment

Investing in mutual funds has become a common practice amongst many investors. Investing in these funds is all about calculative approach which is looked after by fund managers. The professional management and systematic approach brings in additional benefits to mutual funds, below mentioned are a few of them.

Diversification: In order to grow and expand the gains, a financial portfolio needs to be diversified. Sticking to the traditional investment options will only bring in limited returns. When an investor opts for this investment there is immense scope for him to multiply his returns over a period of time. There isn't any stagnancy in these funds. These investments are smartly done wherein the focus is always kept on dividing the risks and not putting all the capital in just one company. So if you decide to invest in the real estate sector your mutual fund manager will purchase securities of two or more companies. Thus the risk is not attached to a single company and even the gains you would receive would vary depending upon the profits respectively.

Commitment free: Investment in mutual funds is most of the times free from lock-in period. They can be liquefied at any point of time, so if the investor feels he isn't making enough money out of a particular fund investment he can choose to sell it off. This is however not possible in case of options like fixed deposits, insurance plans etc. When a financial emergency arises withdrawing FD fund or discontinuing an insurance plan will prove to be of no benefit to you and will also make your future plans tumble, with the flexibility of mutual funds this will not happen.

Professional management: There is always a dedicated fund manager who is dealing with your money wisely. All the calculations and allocation of your money is looked after by him so that you are not left alone to decide where to put your money. Since fund managers are experts, they analyze the markets well and then come to conclusions about where their clients should invest in. Be it a sector altogether or a particular company, their research is vast and in depth which investors cannot do themselves.

This investment thus will give you no reason to worry about your funds. The well analyzed and calculative approach taken by fund managers, immense scope for diversification and liquidity they come along with are prime reasons for their popularity. Not just this, the returns on it can be good if the correct choices are made and as there are a lot of divisions made, the risks are got down to a high extent. If you haven't invested in it, now is the right time to begin and reap the benefits.

Invest in mutual funds to get high returns. Mutual fund investment will give your financial portfolio a diversified edge.

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What You Want To Know About High Performing Mutual Funds

Finding High Performing Mutual Funds

The stock market is known for its up and downs, but for the past few years this volatility has been even more noticeable, making it a good idea to turn toward high performing mutual funds. They are a much safer investment than stocks, as they spread out the different areas of your investment, giving you more protection against losses. You can buy them from online brokers like TD Ameritrade, Fidelity Investments, and Charles Swab. Another option is to go straight to the websites of mutual fund companies, like American Century, Vanguard Mutual Funds, T. Rowe Price, Permanent Portfolio, and Parnassus. These are some of the biggest companies out there, but with research you will be sure to find many more.

Do Your Research First

When it comes to finding high performing mutual funds to invest in, the key component in making sure you are looking at the best is research. Google Finance, MSN Finance, and Yahoo Finance all offer free information that you can use to your advantage. As for what to look for, the cost, the amount of return that it yields, its tax rate, and asset allocation are the four main things you should pay attention to while researching. There are many finance websites other than the ones already listed where you will find information on the funds you have in mind. It is extremely important that you are 100% aware of what you are getting into before putting any money down. Locate the prospectus of all the funds you are considering, as that will tell you the strategies used in maintaining the fund by the manager, as well as whether there are short-term or long-term goals in place.

Take Expenses Into Account

The expense ratio, or cost of your investment, is important. The performance of mutual funds fluctuates in the same way that other investments do. A high cost could be indicative of a performance that is suffering. Costs that are reasonable usually mean a fund has done well over time. Ideally, you should look for investments that are not too expensive, as well as those that do not involve a lot of risk. This is especially true of beginners. You can find high performing mutual funds that do not involve a fee being paid upon the creation of your account, provided you do not cancel it within the first 30 to 90 days. However, every fund is different, so once again, be sure to read the prospectus.

Connor Swinney is the owner of the What Are Mutual Funds website. He created the website to be used as a resource for people who are looking for more information on No Load Mutual Funds or that would like to know how they can create a successful investment strategy.

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