By the way what is a Mutual Fund? Have you ever read a prospectus and determined what stocks the fund you are considering actually owns? You need to read, research and discover that a Mutual Fund is just the legal owner of a number of shares of different stocks and some cash. So when you send in your cash, you buy a share of the stocks that the fund owns. ( I know, it's really more technical than this but don't let that bother you at this point!)
Why should you buy Mutual Funds as compared to individual stocks?
1. Less knowledge is required, on your part, as your fund manager is the real stock guru, picker, expert and professional. If your "bread and butter" profession, your family and your leisure time are using up your available time, don't start researching individual stocks! You're too busy now, so give it a rest and let the "experts" manage your stock portfolio! In fact, I'll bet that most folks would be better off to spend their excess investing time in their career or "bread and butter" profession. Learn more or earn more in your career so you can invest more in your mutual fund portfolio!
2. Because of the professional management you don't have to watch the "stocks" everyday. Much easier to sleep at night knowing that John and Jane Guru are taking care of your buckos!
3. A fund, by owning a number of different stocks, gives you a level of immediate diversification. A large mutual fund can own upwards of 200 different stocks and is generally invested in a number of different industries and economic sectors. IN THEORY, this diversification should even out the volatility of the stock market while providing returns that are historically higher than fixed income returns. Plus, at parties and such you can always say, you own some _______ and some ________, plus you also own __________--all because your mutual fund owns some shares in all these "bragging" companies!! I mean! That sounds like good party talk! Now, when "they" ask where you learned all this good stuff, tell them about ole Ricky's www.biblicalstewardship.com
4. Most funds allow you to buy in small monthly increments so that your investing habits become ingrained! Stocks, in small dollar investment amounts are generally more expensive as your commissions are much higher. Look at my chart, How $100 A Month Will Grow and see how this automatic investing habit can make your future a nice place to live in!
5. In addition to the diversification an investor can also find some wide ranging variety when it comes to selecting an investment vehicle. Want aggressive growth? Income? Foreign investments? Specialized industry or sector investments? Small company investments? Ecology minded investments? Blue chip investments? For every "investment objective" there is most likely a specialized Mutual Fund! Want to track the markets indexes? Buy an S&P Fund, a Dow Fund and even a Wilshire fund. Vanguard's SP 500 Fund is one of the world's largest funds! If you're really into indexes, you should also look up "spiders and diamonds!". When I lose a few more hairs and get a little older, I'll try and input some Kernels of Korn on these spider things. Kernels of Korn are just plain bits of wisdom and knowledge that have somehow trickled down into this big bald cob! Kernels of Korn is also the name of a column I have written for a number of church newsletters. Most of the columns will be reproduced here at Kernels of Korn)
6. Fund management costs are typically reasonable, particularly in light of individual professional money managers. Most funds expense charges are less than 1% of the annual amount invested. Note here that I do not suggest buying funds with up-front load or sales fees unless you plan to keep the funds for at least 10 years or more!
Now, just because I buy them doesn't mean that they are great funds! Some I've done great with, others are just barely holding their own. Now, don't ask me about the ones that are losers! Remember, us experts never lose do we! Well, actually every time I do lose, or strike out, I just recall that in order to be a super star in the Majors, you only have to bat over 400%. So when you or I lose, keep swinging the bat! Learn from your mistakes and keep on tryin. Sooner or later, hopefully, while you still have some investment dollars!
Mutual funds are still subject to the fluctuations in the stock market and as such your returns and principal values can change!
The real important part of all this is: Start to invest! Spend less, save more!
Here's a list of parameters that I use when selecting a new fund:
I don't get too excited about a 1 or 2 year return. I generally buy based on at least a 5 year return over 10%. I never buy what's listed as being the best or hottest fund.
I actually like to compare 3, 5 and 10 year returns.
I don't buy any funds that charge an up-front commission, usually called a Load Fund.
I buy only NO-LOAD funds.
I watch the funds expenses--administration and sales fees or fees known as 12B fees. I prefer that administration is less than 3/4 of one percent. Or .075%. 12 b funds can be really tricky so read what the prospectus and magazine experts say.
If all other factors are the relatively the same, I buy the fund with the smallest total invested dollars. I think smaller funds can continue to manage and make historical returns better than bigger funds. For a list of really small funds, those not even given ticker symbols, check out our links page and go to www.maxfunds.com
I buy funds that are typically fairly aggressive. That is to say, I am not into being conservative. This attitude will changes as my age increases.
In general, I buy and hold! I don't watch the daily or weekly fluctuations, which by the way might mean that all of the funds that I am currently buying no longer meet my original selection criteria. This is an area I should watch more closely but frankly, I just don't don't.
Are these still good funds to buy?? I don't know, I just keep on buying! I know, I know, I should be watching them closer but frankly, my investment "window" is very long-term. In essence, I think a ten year window is okay!
In order to learn more and to help you select your own funds, I suggest you buy the mutual fund issues of Forbes, Kiplinger's Personal Finances and Money Magazine. These issues are published at varying intervals during the year so you might have to go to the library to find them. Or check our Internet sources on the links page.
I also suggest that you call Charles Schwab 1-800-435-4000 and ask for a copy of their mutual fund guide. This magazine/newspaper really is a great source for limiting your mutual fund choice to say 5 or 10 funds. The guide lists the funds according to the category or investment philosophy. Aggressive to conservative, you can pick your own funds based upon your goals, risk tolerance and investment capital.
After picking say 5 to 10 funds you can then research these funds even further by looking at: Brill.com, Schwab.com and Morningstar.com. And dozens of other places but why don't you start with one of the above.
Schwab's analysis and research will even list some alternative funds in the category you've selected, plus Schwab has a number of funds that they sell with no commissions or sales fees. Most of the major fund families (groups of funds owned or managed under the same corporate umbrella) have their own web page and investment accounts.
In most cases, I buy direct from the funds. Their numbers are always listed in the magazine articles. Call and ask for the prospectus. Read these to see in which stocks the fund is investing in. Sometimes you may not agree with the fund's philosophies. Other times, you'll want to know what the fund owns so you can have that party information you might need!
Buying that first fund? Start with what you consider a small to medium investment. Say 30 to 50% of what you have available for this investment. Pick one to three funds and divide this amount into each fund to open the accounts. Then, calculate the monthly amounts you can afford to invest over the next 12 months. Have this amount taken directly out of your checking account! At the end of the 12 months, evaluate each fund and make decisions as to decreasing or increasing investments in each fund.
The real point is to get started! As you start, please continue to read all you can find about the investment markets. Mutual funds, stocks etc. It's boring at first, but after you have invested a few dollars you will be amazed at how interesting it can become. Plus, you won't understand it all the first few times times you read it! Just keep on reading! I call it the Triple Korny!! You read it once to just read it, read the second time to understand a few paragraphs or so and then you read it the third time so that you can at least understand what the title of the article meant! Seriously, sometimes it takes me 4 or 5 times before I'm sure that I know what the author was talking about! Don't ge discouraged! Keep on reading and keep on investing!
Don't invest so much that you start to be concerned
about your investments. Sleep is far more important than money!
Got some dumb questions? No! Any question, unanswered is dumb but any
question asked, means you're getting educated and more intelligent so ask,
and you shall receive!
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