Build Your Own (Cheaper) Mutual Fund
Two of the biggest arguments against mutual funds are high costs and poor performance. When your mutual fund starts under performing and increasing costs, instead of finding another mutual fund money sink, build your own.
When a mutual fund is started, it’s built around a goal. Something that easily explains to investors how all that money will be invested. There’s a hitch, though. With an active manager you just never know how much they veer off course from that goal. And when they fail, it only costs you more. Which is just one of many limitations.
Costs limit your investment performance. There is no way to cut costs entirely. So we have to focus on keeping it to a minimum. This keeps more money invested and growing over the years.
Then there is the performance issues. Your money has a goal (at least it should have a goal). So you search through all the possible funds to, hopefully, find a few that sync up with your goal and don’t eat away too much of your profits.
It all works out for a while until the cost and performance of those mutual funds don’t live up to expectations. So you look for another fund to put your money in and the cycle starts all over, compounding the costs.
Of course, there is another, cheaper option. Read more…
What Type Of Investment Strategy Should You Use?
People are constantly on the lookout for the perfect investment strategy. That Holy Grail of constant profitable returns. Unfortunately, no strategy is perfect in the sense that it will guarantee good returns. In fact, I’ll argue that only having one strategy limits our ability to invest profitably.
Currently, investment strategies are a popularity contest. The strategy with the best returns last year or the one most recently written about, tends to get the most attention. Good for the strategy and book publishers, but is it best for new investors just starting out? Hardly! Because what works for me may not work for you. Instead, it should come down to your comfort level, knowledge (hopefully), time, and your financial situation.
Trading Strategy
Trading is definitely not for everyone. It’s time-consuming, stressful and short-term oriented. Trading can have a timeline of seconds, days, weeks or a couple of months. But the goal is to reach a target price, sell, and walk away. Traders take advantage of short-term trends, news, and speculation to make fast money.
An extreme example of this, Read more…
Mutual Funds, Another Resource For Finding Great Stocks
There are many ways you can go about finding great quality stocks. You could use stock screeners, newspapers or magazines, business news channels, to name a few. Some of those can become a bit overwhelming, which is why research sites come in handy so often. You go through their recommendations, read the how’s and why’s, and decide if you want to invest or not.
The goal, here, is to find unconventional sources that offer a glimpse of stocks that could make you money. One of those options is to use mutual funds to find great stock recommendations.
Most mutual funds are actively managed. Are set up to specifically fit into a unique category (i.e. Dividend Income, Small-Cap Equity, Equity Income) or sector (i.e. Energy, Health Care, REIT). The fund managers and staff behind them are paid to research and invest in the best stocks that fit those categories. Finally, a mutual fund is required to report it’s holdings and finding that information is as easy as heading to the fund company website.
The “Top 10 Holdings”
A good place to start is at a mutual fund company’s website, which should contain all the information you need and more. You can go through each mutual fund individually to find stock ideas or head directly to a specific fund if you already know the type of stock you’d like.
Read through the description of the fund, to make sure it fits your investment strategy and then head to the “Top Ten Holdings” section which can be found in the summary. This is exactly what it sounds like, the ten largest holdings in that fund. But it should also have a “% of total assets” and “as of date” listed as well. Both are very important. Read more…
Investing After The Debt Debacle
Anytime government issues overwhelm business news for as long as the debt ceiling crisis has, protecting your money should be a concern. Washington says that they have the votes to push the debt deal through. The deal would take the worst case scenario, debt default off the table. But until it happens everything is in limbo (at the time of this writing the debt ceiling vote hadn’t happened).
Throughout this debt debacle, several economic indicators have been released showing signs of a slowing economy. The current debt deal will only limit the governments ability to further additional economic growth. Which leaves the economy’s savior to jobs. If only the powers that be in Washington can find a way to agree on spurring job growth. Which is highly doubtful after watching their total lack of cooperation with the debt deal.
Until job hiring improves, and we shouldn’t expect significant changes for at least a year or more, we can expect slow economic growth through the November 2012 elections. So the big question is where should you be investing your money? With a timeline of 12-18 months, safety is the quick answer.
The 3% Plus Dividend Yield
The goal here is getting a better return on your money than you would in treasury bonds. The 10-year treasury bond is sitting at less than a 3% yield. You’re not risking much by investing in a stock, mutual fund, or ETF that has a dividend yield of 3% or more. Reinvest those dividends and compounding returns will only help the cause. Read more…
Investing In Index Funds
Index funds have, arguably, been touted as the best investment for the average investor. They have consistently outperformed the majority of the actively managed mutual funds. Over the long term broad stock market index funds have averaged an annual return of about 8%. Unfortunately many investors have taken these points to assume an index fund is a safer investment. Which is far from the truth.
You’ve most likely come across index funds as an option in a retirement plan, at a fund company’s website or seen them offered through your online broker. Almost every fund family offers several different index funds. But not all index funds are equal.
What Is An Index?
An index is a group of stocks used to represent a portion of the stock market. If you’ve heard of the Dow, Nasdaq, S&P 500, Russel 2000, or Wilshire 5000 you’ve heard of an index. Which are all used to measure a portion of the markets performance.
The most well known index, the Dow is an index of 30 large companies that are believed to mimic the overall market. The S&P 500, however, is an index of 500 companies that offers a representation of the overall markets performance. Read more…
Defining Large, Mid and Small Caps
You see the terms large cap, mid cap and small cap quite often when describing a company, mutual fund or ETF. What do they actually mean? How do they impact an investment strategy?
When defining the “cap” portion of these terms, it’s short for market cap or market capitalization. A companies market cap is the total market value of a company. It can be found by multiplying the stock price by the total outstanding shares of the company.
What is a Large Cap?
Large cap refers to the largest companies traded on the stock market and will have a market cap of $10 billion or more. They tend to be the most followed by analysts and investors. Historically, large cap companies experience a slower growth rate and have much lower risk due to their size. Because of this many large caps are given the designation of blue chip. A few well known large cap companies include Microsoft, Walmart, Amazon, and Nike. Read more…
Can We Say Goodbye to 12b-1 Mutual Fund Fees?
The Security and Exchange Commission (SEC) voted unanimously recently to propose limits on mutual fund 12b-1 fees and provide more transparency to investors. The SEC’s proposal would help protect investors by limiting 12b-1 fees to 0.25%, improve the transparency of fees for investors, encourage retail competition, and revise fund director oversight duties.
12b-1 Fees?
If you have ever put money into a mutual fund you were most likely charged a 12b-1 fee for every year you had money in that fund. The 12b-1 fee is a marketing or distribution fee on a mutual fund. It’s considered an operational expense currently capped at 1% (some funds charge less) of a fund’s net assets. It may not seem like much but they’re costly, Read more…
