Finance Tips

Mutual funds are investment options where many investors pool together resources in order to collectively invest in bonds, stocks, real estate and financial market securities. This kind of investment comes with its share of advantages and disadvantages. However, given the thousands of investors that have embraced this option and are making money out of it, the merits seams to greatly outweigh the demerits.

Mutual funds come in options that do not have guaranteed income, such as stocks, shares and real estate and ones that have fixed income, such as bonds and treasury bills. The funds that do not have a guaranteed income experience severe price fluctuations and are more risky to invest in. This means that, just like any other kind of investment, mutual funds investment can not guarantee a return on your investment. It is always important, before a professional manager decides to buy into a fund, to do research into its past performance to appreciate the risk involved.

A professional investment manager would also want to advise the investors on what sector or industry they invest in. A mutual fund could only invest in industrial funds, without reference to sector funds. It remains your duty as an investor to ask the managers where they are investing your money. Some managers make the mistake of diversifying so much on one particular option with related products. Doing this will compromise the reasons for diversification which is risk reduction and higher returns. Continue reading ‘Some Of The Disadvantages Of Investing In Mutual Funds’ »

A mutual funds investment is about pooling money from many investors in order to invest in stocks, bonds, real estate or money market securities. This has the benefit of diversifying the investors portfolio, thereby reducing the risks involved and increasing the chances for more revenue. However, most investment managers fail to reap the benefits of diversification by over investing in one sector and ignoring other sectors of the economy that are seen not to be doing very well.

Through experience, i have found that, the best performing stocks or bonds today could easily become the worst performers tomorrow. A recent case in point is that of Enron or Worldcom, where investors lost millions of their hard earned dollars in their stocks. An investor should always make sure that his portfolio is diversified enough and that the mutual fund manager does not concentrate on a particular industry. Investing your money in mutual funds, does not mean that you are sufficiently diversified.

Investing in a particular sector requires that you do a lot of research on the fees associated with your investment. Fees and charges that are associated with mutual funds include Purchase fee, shareholder fees, annual fund operating fees, redemption fees among others. These fees are charged on the investors account irrespective of whether the fund made money or not. The professional management that you get when you invest your money in a mutual fund does not come for free, it has to be paid for. Continue reading ‘Some Of The Factors That Determine The Performance Of Mutual Funds’ »

In order to reduce the exposer to volatility that you may have by investing into individual bonds or stock units, you may decide to buy a mutual fund. The reason for this is because the resources are pooled together in order for the investment managers to buy whole lots of the stocks or bonds in the market, thereby spreading the risks associated with investments. The managers are also able to buy whole lots at discounted prices because of the volumes that they buy, effectively passing the benefits to the investor.

A mutual fund investment portfolio comes in two styles, i.e. actively managed funds, where the manager has total control of your funds on one hand and the passive and index mutual funds, where the manager will run your account at your discretion. Either way, you still have the chance of investing into hundreds or even thousands of companies that have offered stocks, bonds or securities. The existence of this kind of investment is a blessing to investors who want to build a diversified portfolio at a cheaper cost.

Most people do not have the knowledge, time or resources to buy stocks individually, the only choice that they may have is to seek the advice of a professionally managed investment scheme that will monitor, research and analyze the portfolio they are already holding at the same time keeping an eye on any potential gainers in the market on any particular day. Unlike most investors, the mutual fund managers are trained on finance and investment and are able to make decisions that could make you a lot of money in the long run. Continue reading ‘Reasons Why You Need To Buy A Mutual Fund’ »

Mutual funds are a kind of investment where investors pool funds for the sole purpose of trading in stocks, shares, bonds, securities and real estate. One of the key advantages of this kind of investment is the ability of the shareholder to reinvest the dividend distributions or capital gains accrued by buying additional stocks or bonds to add to his portfolio. This allows investors to build on their portfolio through dollar cost averaging giving you more shares and in the long run, helping you to avoid excess tax.

Something i do not like about mutual funds is their apparent transparency, from their delays in reporting to their lack of proper information. These delay is caused by the managers failure to immediately disclose their source of gains for fear that the competition would learn about their endeavors. In most cases, they tend to lead people through the wrong path by giving information on the prospectus that does not contain all the factors that determine what the return on your investment would be.

Mutual funds are liquid, meaning that when you need to withdraw from the fund, you only inform the fund company and you will get your money within the next business day. Since people are constantly saving into the fund and others withdrawing the money at the same time, the fund managers are forced to maintain a lot of liquid money in their bank account. This money does not help you because it does not trade and therefore does not contribute in any way to the dividends that the fund pays. Continue reading ‘Some of the Benefits of using Mutual funds’ »