|
|
Most of the assets in American mutual f funds are domestic stocks. However, there are funds for every conceivable type of asset class. There are also a variety of investment objectives and asset allocations. Picking the type of mutual fund that is right for your financial situation is no easy chore, especially for the novice investor. So, I have provided a basic run-down of the options available and their investment characteristics.
This is the third in a series of five posts on mutual funds.
Why I Invest in Mutual Funds
How to Pick a Mutual Fund – Return
How to Pick a Mutual Fund – Type
How to Pick a Mutual Fund – Fees
How to Pick a Mutual Fund – Risk
Disclaimer: I’m not an investment professional nor am I licensed to sell securities. This information is provided for entertainment purposes. Before investing, you should seek the advice of an investment professional. I’m not affiliated with nor do I receive compensation from mutual fund companies.
Asset Classes
 Image by BombMan Stocks - Stocks are considered an equity investment, because they represent partial ownership in a company. They are volatile and can gain and lose value rapidly. They are most suitable for investors looking for growth who can tolerate risk, such as younger investors. They are not suitable for investors looking to preserve capital, such as retirees and near retirees.
Because of the twin crashes of 2001 and 2008, this has been a lost decade for stocks. However, stocks are historically the best performing asset class, over a long period of time. Stocks are valued based on earnings, so if the companies’ earnings grow, their stock values will increase. Also, many stocks pay dividends, which increase the return and provide income.
Bonds - Bonds are considered income investments, because they pay interest to the bond holder. They have more stable prices than stocks, which makes them suitable for people living on investment income. They are better protected from bankruptcy than stocks. And some bonds, such as municipal bonds, have tax advantages.
One thing you have to worry about with bonds is rising interest rates and inflation. If you own a bond paying 4% interest and inflation jumps or new bonds are issued at a higher rate, the value of your bond will drop. Bonds can also appreciate if interest rates drop. But, interest rates are close to zero right now, so that is unlikely to happen. I’m not experienced in bond investing, so I will defer to others who are more knowledgeable.
Continue reading How to Pick a Mutual Fund – Type
I have been pretty successful in picking mutual funds. Most of the funds I have owned over 25 years have outperformed their corresponding indices. I am fortunate to have owned some of the best performing mutual funds during their heyday, including Janus Twenty and T. Rowe Price Capital Appreciation. I have also picked a couple of dogs, but they have been the exceptions.
This is the second in a series of five posts on mutual funds.
Why I Invest in Mutual Funds
How to Pick a Mutual Fund – Return
How to Pick a Mutual Fund – Type
How to Pick a Mutual Fund – Fees
How to Pick a Mutual Fund – Risk
Disclaimer: I’m not an investment professional nor am I licensed to sell securities. This information is provided for entertainment purposes. Before investing, you should seek the advice of an investment professional. I’m not affiliated with nor do I receive compensation from mutual fund companies.
Proven Track Record
 Image by Dodge Challenger1 I only pick mutual funds from well established fund companies, with a solid track record of high performance. I never pick the hot new funds that burst on to the scene. I only invest with funds that have been around for at least ten years, with the same fund manager. I want to make sure the fund manager has experience in up and down markets. I don’t want someone learning on the job, with my money.
In my experience, if a fund company has good fund managers and a sound investment strategy, they are most likely to produce winning funds in the future. Past performance is not a guarantee of future results. However, experience and discipline are valuable commodities on Wall Street.
Who is more likely to win the next World Series, the Cubs or the Yankees?
Continue reading How to Pick a Mutual Fund – Return
About 65% of my portfolio is invested in mutual funds. The rest is invested directly in stocks through my E-Trade brokerage account. Mutual funds were my first and only investment for about 20 years, before I began to choose my own individual stocks. There are a number of key reasons I invest in mutual funds and I strongly recommend them to other investors.
This is the first in a series of five posts on mutual funds.
Why I Invest in Mutual Funds
How to Pick a Mutual Fund – Return
How to Pick a Mutual Fund – Type
How to Pick a Mutual Fund – Fees
How to Pick a Mutual Fund – Risk
Disclaimer: I’m not an investment professional nor am I licensed to sell securities. This information is provided for entertainment purposes. Before investing, you should seek the advice of an investment professional. I’m not affiliated with nor do I receive compensation from mutual fund companies.
Convenience
 Image by Rosenfeld Media The beauty of a mutual fund is that it’s almost as convenient as a bank account to open and manage. Although most people are familiar with choosing mutual funds through their 401K plan, opening one on your own is a snap. And, you don’t need a lot of money to start a mutual fund. Many fund companies will waive the minimum balance, as long as you agree to an automatic monthly investment.
When I first started investing in mutual funds, they didn’t have fully-interactive websites. You had to actually mail in your application with a check and call up customer service to purchase or redeem shares. Now, you can fill out your application online and be up and going within minutes. Plus, you can purchase, redeem or check the value of your shares right online. There are also plenty of incredible financial calculators and research tools.
Disclosure: I’m not affiliated with Fidelity Investments nor do I own any of their products. I’m not affiliated with Rosenfeld Media. The image above represents the many useful tools provided by mutual fund companies.
Security
One huge benefit of mutual funds is that they are very secure. You can lose some value if the market goes down, but no one will have Madoff with your money.  Funds are audited annually, by large CPA firms, to ensure your money is right where it’s supposed to be. This is not always the case with hedge funds and independent financial advisers. Even banks fail regularly, but mutual funds rarely become insolvent.
Continue reading Why I Invest in Mutual Funds
I have been posting and commenting for months that public pensions are the next shoe to drop. That shoe just dropped rather loudly. An article in the New York Times (via Yahoo Finance) stated that there is a $1 Trillion dollar public pension shortfall. This is according to the Pew Center and it follows similar projections from economists at Stanford University and the University of Chicago. Despite repeated denials from PERS and public employee unions, public pensions are in big trouble.
Pension Problems
 Image by Alex Proimose The public pension system was hit by a tsunami of excesses that were easy to predict. Public employees and military personnel often retire at a younger age and and enjoy a longer retirement. Public salaries have risen faster than comparable private employees and this has caused retirees to take home larger pensions. Finally, public sector hiring has exploded the number of employees, putting a huge strain on the pension system.
The guaranteed nature of public pensions creates a huge liability for state governments. Even though some employees have paid into the pension program, their contributions cannot support the total number of retirees and their pensions. This places the states in a precarious position of paying for unfunded pension benefits, at the expense of public services. In an economy where people are losing their jobs and homes and government revenue is down, there is not enough money to subsidize the public pension system.
Continue reading Trillion Dollar Public Pension Shortfall
I have a pretty positive attitude toward the future. And, I see a lot of new opportunities developing. However, there are some very disturbing trends that seem to be gaining momentum. These trends could have a negative effect on our ability to compete in the world marketplace. And, they will make it harder to live in the lifestyle Americans have become accustomed to.
Disappearing Middle Class
 Image by Wonder Mike The middle class of America was once the envy of the world. A working person could support an entire family and live in relative comfort from a single income. He or she could own a house, a car and many modern conveniences. They could expect an education, health care and possibly a small pension for retirement.
The middle class is disappearing rapidly, as labor jobs that supported them move overseas. These jobs won’t be returning any time soon, because of globalization and the high cost of manufacturing in the U.S.
We are headed toward a two-class system, similar to what has happened in Argentina, where the rich get richer and the working class get poorer. Real wages have been stagnant in the U.S. for quite some time, despite the steady rise in the cost of living. That’s why there are so many boomerang children right now. It’s getting harder for young workers to afford rent and utilities. Even college grads are struggling.
Solutions: Prosperity lies in goods and services that can’t be outsourced or produced overseas. Industries such as medical and accounting will have steady growth. College degrees in Chemistry, Engineering and hard sciences will remain valuable. Entrepreneurs will be paid better than employees.
Continue reading Economic Trends Affecting Americans
|
|
Most Popular Posts