|
|
Mutual Funds 101 for Women (and Men)Mar 21 '01 Write an essay on this topic.
Popular Products in Books
The Bottom Line I am a firm believer that with knowledge comes power…and when we as women can acquire the knowledge, we are only empowering ourselves for the future.
Well, now that we’ve gone beyond basic investing and expanding on the ideas of looking into the highly touted stock market…I’ve decided to move forward into the realm of mutual funds. These are actually another type of investment that we hear quite a bit about when it comes to deciding on our IRA’s or retirement portfolios, and chances are many people are asked to make some major decisions regarding their money with mutual funds without ever really knowing what they are getting into and how their money will work for them once it is invested. So, without further adieu…let’s move forward. Mutual Funds: We know from my previous article on basic investing, that a mutual fund is actually a pool of stocks, bonds, or a combination of the two (also known as “securities”) that is overseen by a professional money management firm. These firms use their knowledge and expertise to freely buy and sell large amounts of these securities in accordance with the goal and definition of the overall fund. When you purchase shares or invest money in a mutual fund, you are actually purchasing a portion of the money management company as opposed to purchasing individual stocks or bonds. Mutual funds are actually one of the more popular types of investments within the United States…which, according to the web site of Cassandra’s Revenge, currently offers over 9,000 different types of mutual funds from which investors can choose. Why are mutual funds so popular? Mutual funds are popular with investors for several different reasons. First of all, they offer a great deal of diversification to an investor’s portfolio. By investing even a small amount of money, a person can own a part of numerous different stocks and bonds on the market. Secondly, by utilizing a professional firm to invest your money for you…the guesswork and the footwork is actually being done for the investor by experts in the field who may have a greater knowledge of the market than the investor does. Another positive aspect of mutual funds is the fact that a person does not need to have a large, lump sum of money in order to invest…rather, they can take small amounts out of each paycheck and incorporate it into their portfolio over a longer period of time. Mutual funds are considered to be a very “liquid” investment, which basically means that they are easy to sell or redeem on the market when the investor no longer wants to be involved with that particular fund. And finally, mutual funds offer the investor convenience because they can be bought and sold virtually anywhere via the phone, internet, or in person. Purchasing Mutual Funds: It is possible to purchase shares of mutual funds by yourself via various internet web sites, however the most popular means to invest in these types of funds is through a brokerage or investment firm. One of the first things you must ask yourself once again, however, is what your goals are for the future and what you plan on doing with your investments? Are you looking for something that will provide you with a steady income during your retirement? In this case, you would look for a mutual fund that has a lower risk factor associated with it, as well as its tendency to pay out a steady sum of money over a long period of time. Once you have determined and defined your goals, you can contact a broker and begin asking the pertinent questions. Never go into an investment blindly, and know the specifics about your chosen mutual fund before you sign any document or hand over any money. Ask the broker to send you a prospectus on any mutual funds that sound like ones which might interest you. A prospectus, although it can be a lengthy and boring document, will offer you crucial information such as the policy objective, goals, risks, costs, fees, a ten year investment table, the name of the investment manager, and some basic shareholder services. Once you have carefully investigated the fund and have all of your questions answered, you will need to request an account application to begin the process of investing into the mutual fund. The single thing you need to keep in mind when looking at mutual funds, which every article defined as of high importance, is to be able to look at the performance of the mutual fund over a long term period of time…that is the best indicator of how a mutual fund will grow. How does one make money on a mutual fund? An individual that chooses to invest in mutual funds can make money in one of three ways: 1. Dividends: As we discussed before, a mutual fund is made up of stocks and bonds. Over time, these stocks may earn dividends when a company shows profit and/or the bonds will earn interest. If and when the stocks and bonds pay out, shareholders within the mutual fund each get a portion of the wealth distribution. This distribution will always occur on a set schedule and the investor has the option of taking the money earned as cash or choosing to re-invest it into the fund. 2. Capital gains: If you own a fund made up of stocks which is managed by a professional firm, there will undoubtedly be times where stocks will be sold on the market. When the management firm chooses to sell a particular stock, profits will be earned which are called “capital gains.” These capital gains are then distributed to shareholders within the mutual fund, and as before the investor has the option of taking the money earned as cash or choosing to re-invest it into the fund. 3. Selling shares: When a person invests in a mutual fund, we know that they are purchasing a portion of the management firm. At any time, the investor has the opportunity to sell his or her shares on the market to other potential investors. As with stock shares, the ultimate goal here is to buy low and sell high…in which the person would sell their shares at a higher price than which they were originally purchased at…thus resulting in profit for the investor. What is NAV? NAV actually stands for a mutual fund’s “Net Asset Value.” When you invest in a mutual fund, understand that they are measured according to their total return to the investor. This will include the increase in value over a specific time period, re-investments, and capital gains…but will exclude any fees. NAV’s will fluctuate as a result of investment activity within the mutual fund. The actual formula for figuring out a mutual fund’s Net Asset Value is to take the value of its securities held by the fund, subtract the fees charged to the investor, and then divide that number by the number of shares. NAV’s can be tracked in any financial section of local newspapers or on web sites that offer financial information. Types of Mutual Funds: -Open End- in this type of mutual fund, there is no limit on the number of shares investors are allowed to purchase either individually or as a whole. Shares in an open end fund are traded at their Net Asset Value. -Closed End- in this type of mutual fund, there are a fixed number of shares issued to interested investors…somewhat similar to how it would be in a company. Shares in a closed end fund are traded on a stock exchange at their market value. -Offshore- these type of mutual funds are those that are registered outside of the United States. With these funds, there are very strict state and federal regulations which must be followed in order for them to be allowed to be traded within the country. ***Note: Within each of these types of mutual funds, there are sub-categories which indicate the objective, or goal, of the mutual fund and often indicate the type of securities that will be bought and sold within the mutual fund itself. (i.e. Stock Funds, Money Market Funds, Bond Funds, Hybrid Funds, International Funds, Specialized Funds, and Index Funds) Mutual Fund Fees: There are four different types of fees that the investor needs to be aware of when it comes to investing in mutual funds…they are as follows: 1. Sales charge- often this fee definition is divided up into what is commonly termed a “load” versus a “no load” mutual fund. In a “loaded” mutual fund, the investor will be paying a commission of between 3 and 8 ½% when new shares are purchase within the fund. Usually loaded funds are purchased through such individuals as stockbrokers, financial planners, or investment advisors who will want to be compensated for their work. In a “no load” mutual fund, there is no sales charge and no commission fees applied…the investor buys directly from the mutual fund. This is the better choice for the investor. 2. Redemption fee- also known as the “back end load fees,” this type of fee is a percentage paid to the fund when shares are sold. 3. Management fee- this type of fee is paid back to the management via money taken from investor’s accounts. They are based on the amount of total assets in the fund and are used to cover administrative costs. 4. 12b-1 fees- these aren’t all that common, but should be mentioned. In some cases, the management will charge the investor 1 ¼% fee for purposes of covering the costs of marketing the fund. So, it seems once again that some of the most critical themes in investing have been reiterated within this special investigation on mutual funds. Personally, I learned that it is important to have my own goals in mind before I decide on which mutual fund’s objective is best for me…as well as to prioritize the gathering of information and the asking of critical questions regarding each fund so that I understand everything completely before I make any sort of decisions. Since this is officially my fourth essay on various investing issues and concepts for women, I can honestly say that this has been an eye-opener for myself and my husband. There is so much more information out there than I realized, and what I have written only skims the surface of everything that is involved in investing in the various arenas out there in order to secure a promising financial future for my family. BUT…I would rather take the time to research and report than risk making a huge mistake that would cost me hard earned money in the long run. I hope that someone out there has found this to be beneficial and perhaps will give them an increased sense of knowledge and security when it comes to approaching these delicate and often times confusing topics. I am a firm believer that with knowledge comes power…and when we as women can acquire the knowledge, we are only empowering ourselves for the future. Until next time…thanks for reading! ***Disclaimer: This information is provided as an Epinion for this web site, and constitutes my own research and opinion. I could not have offered the wide array of facts and statistics without the help of various sources including Suze Orman’s fantastic book “The Courage to be Rich,” the financial wizards at the Motley Fool web site (www.motleyfool.com), the web site of Cassandra’s Revenge, and the web site of the Women’s Financial Network (the latter two designed specifically to target women and investing). This information is in no way intended to take the place of a professional financial planner.  |
| Read all comments (3)|Write your own comment |
|
Ads by Google
|
