Mutual Index Funds

The best mutual fund for you is the one that helps you reach your investing goal whether it be a down payment on a new home or retiring to Fiji.

Performance

Performance is the first thing everyone thinks of when it comes to mutual funds.  If investing were a game pitting mutual fund managers against each other, performance would be the “scoreboard”.  There are numerous sources for looking up mutual fund performance.  You will see performance for different time periods ranging from 1-month up to 10 years.  In general, longer is better.  It is nice to see a track record of at least 10 years.  This way you can determine whether the fund is beating it’s benchmark(the standard by which it is measured).  For example, the benchmark for a Large-Cap mutual fund is the S&P 500.  Over an extended period of time active funds should beat their benchmark. Passive funds or index funds should perform nearly equal to their benchmark.

Loads

The second thing to consider are loads, also known as sales charges or commissions. There are load and no-load funds.  The term load describes a fee paid to purchase or sell a load mutual fund. There are two kinds of loads: front-end loads and back-end loads. A front-end load is paid when you buy a load fund. A back-end load is paid when you sell a load mutual fund; it is also called a redemption fee or deferred sales charge.  Avoid all loads unless you enjoy giving away your hard-earned savings to rich people.

Expense Ratio

The third thing to consider is the expense ratio.  Many investors overlook this aspect and shoot themselves in the foot before they even get started investing. The expense ratio is the percentage of fund assets that go toward the costs of running the mutual fund.  If the expense ratio is 2% then each year your invested assets in the fund are reduced by 2% to pay these costs.  Ideally, you want to own a fund with a low expense ratio (below 1.00%).

All of this info is readily available from websites like Morningstar and Yahoo Finance. 

Take a little time to do your research.  It will pay off in the end.

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The best place to invest money really depends on the individual doing the investing. To determine which place to park your funds depends on how much risk you can handle and what type of time frame you are working with. This article will describe a few low risk options for investing funds along with a few high risk options for investing.

If someone asked me what the best place to invest money was, I would present them with a few different investment strategies and explain the expected return and the risk of each of those investments.

For someone who is very risk averse (one who avoids risk), I would recommend a fixed income security or a money market account. A money market account is similar to a normal bank account except it pays a higher interest rate. ING Direct offers money market accounts and sometimes offers a sign-up bonus. The interest rate from these types of accounts are normally around the rate of inflation.

For someone who can accept a moderate amount of risk, they should consider an index mutual fund. An example of this would be the Vanguard 500 mutual fund. This fund has extremely low fees and is a basic copy of the S&P 500. The reason this carries moderate risk is because it is a diverse mix of fairly conservative stocks. This specific fund has an average annual yield since inception of 10 percent.

For someone who can accept a high risk, they should consider trading individual stocks. This option takes a great deal of research and a strong heart. Stocks can jump or crash 20 percent or more on a single day. If you are not careful it can turn into a form of gambling. There are many online stock trading brokers to choose from (Etrade, Charles Schwab, Trade King, Sharebuilder.com). The key to success in stock trading is research, have a strategy and don’t emotionally invested in a certain company.

If risk doesn’t matter at all, there is also the Forex market. This is the foreign currency exchange. In this type of trading, you can open an account with a broker who will provide you a margin of up to 200 times your original investment. Small swings in currency rates can lead to huge profits, but it can also wipe out your entire investment in a matter of seconds. For a comprehensive guide to investing in the Forex markets see http://www.babypips.com. It should be noted that most traders recommend using a practice account for at least six months before deciding if the forex market is right for you. To sign up for a practice account see www.forex.com.

The most important thing to think about before you begin trading is what you can afford to lose. If you are working with funds that your family will need in the near future, stick to something safe. It will not provide the return of stocks, but it will also not wipe out your family’s quality of life.

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Investing in mutual funds is simple activity, but most investors still do it the wrong way. Have you heard the phrase “Mutual funds simply don’t work!”?

So many times.

If you expect that just throwing few thousands into the best performing fund in your country will make you successful, then I am not surprised it doesn’t work.

If you are willing to think and do some effort developing an investment strategy, then I am sure you will crack the market and earn double digit from mutual funds investing. Constantly, year after year.

Here are five simple tips which will help you do that:

1. Diversify within the markets and fund types

This is really simple. If you invest in 3 funds, don’t pick all the 3 within the same market. Better combine funds which invest in different market niches, or different regions of the world. Don’t put all your eggs in one basket.

Another thing to consider is mixing the types of the funds. Pick one general funds with moderate risk level. Pick one index fund. One more conservative mutual fund. One which invests only in startup companies… You got the idea. Mix those funds.

2. Buy at low times

Most people buy when the mutual fund prices have been raising up for long time. They sell with panic when the market goes way down. Most people lose or don’t perform well with funds or any other investments.

Don’t be one of them.

Low times are good times to increase the size of your investment. You get shares at lower price and the prices are much more likely to raise than if you bought at high times. Of course there are tons of other factors to consider, but in general, low market is better for buying more shares.

3. Use signals

There are various services online who offer buy and sell signals for mutual funds. They will tell you when to sell or buy a given fund and will help you to achieve much better results than with “buy and hold” strategy.

There are few disadvantages of these services – they cost money and not always perform so well. But with some research you can pick a winner. If your portfolio size is big enough – at least $10,000 – the monthly or yearly fees will probably be justified by the improved results of your investing.

4. Look outside your country

If you love your country, that’s great, but hope you know its economy can’t always grow with the highest rate in the world (even if it is doing that now). The good investor ought to look at different world regions for good mutual funds.

Right now Asia (India, China), East Europe (Bulgaria, Ukraine, Romania), Latin America (Brazil, Chile) are hot. It would be nice to pick mutual funds who play some of those markets. And a small hint – don’t go with the biggest international players like Pioneer – they are too conservative. You’d better invest in local funds in the countries you target – provided they accept foreigners of course.

5. Be consistent

Mutual funds investing is not a get rich quick game. Putting few bucks once will not make you rich. Consistency will.

Invest part of your income each and every month. Even $50 makes wonder when done Month after month, every year.

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Stop chasing the latest hottest mutual fund and start checking out mutual fund families and their performance records. To begin, you start off looking at Fidelity, Vanguard and T. Rowe Price. These are the big three in the mutual fund field.

All have been around. Fidelity is the family of funds I am in and Vanguard is a bunch of index funds that follow their particular segment of the market and provide passively managed returns at low cost. All the fund families recommended above are no-load funds that do not charge an upfront fee or “load” to join.

Next start looking at funds that are actively managed….you are betting on the fund manager: so you on betting on the jockey instead of the horse for performance. Look at their three, five and ten year returns. Look at the growth of $10,000.00 over a ten year period and finally look at their Moringstar or Lipper Ranking and how the fund is rated by these two non-profit organizations.

The outlook for the economy for the next three to five years is good after we get over the final hump of this recession. Now is the time to rearrange your portfolios and don’t forget to allocate a small portion of monies to alternative investment such as futures, stock options, and low risk forex accounts; emerging markets or foreign investments should do well as the over all world economy improves.

Use any website you like – but the family of funds websites or Marketwatch are the best to research and track these funds.

With Fidelity try looking at FLPSX, FCNTX and FDVLX. Also look at Third Avenue Value (TAVFX) as an addition or alternative to FDVLX. I have been in these funds since 2001 and averaged 11.36% annual returns up to 2007.

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If you have been awarded a settlement due to arbitration or through an order by a judge because of a lawsuit, you have the option of receiving your settlement in the form of structured mutual funds. But are you making the right decision by accepting your settlement as structure mutual fund?

Mutual funds are considered to the safest mode of investment. This does not negate the fact that mutual funds do have risks associated to them. However, you can get more income from your settlement if you invest in a mutual fund. If you are in a position where you do not require the settlement to pay for medical expenses or home care, it is better to invest your money into a mutual fund which will realize a higher yield that an ordinary savings account. This way your mutual fund will help you build a nest egg for your later years.

Structured settlement mutual funds have another advantage. You can move your funds around to suit the changing needs of your life. This is not possible with fixed annuities. So, if you are anticipating some changes in your life in the future, mutual funds give you the leeway to do so.

This said, structured settlement mutual funds are not the perfect investment vehicle of everyone. In order be sure that structured settlement mutual funds are meant for you, do a thorough research before making a decision. You should only opt for structured settlement mutual funds if you do not require money for your ongoing expenses. If you do require money, accept the settlement as it is awarded after consultation with your lawyer. Otherwise, accepting structured settlement mutual funds is a smart way of ensuring your financial future.

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An index fund is a special type of fund that invests money in financial vehicles that make up an index. For example, a stock index fund that wants to replicate the stock market may buy all 500 shares that make up a stock index like the S&P 500 index. This “copycat” index fund will change more or less in the same way as the S&P 500 index.

A stock index fund will always move up and down close to the same amount as the stock market. You will never be disappointed that your fund performed much worse than the stock market. Index funds work to ratchet up or down in proportion to the market as a whole. When you read in the papers that the stock market went up 15% in any given year, your index fund will also be up about 15% if you had held that index fund throughout the entire year. This does not mean that an index fund will never go down in value. It only means it will go down in value at about the same rate as the stock market should the stock market decline. The benefit of index funds is that they are expected to perform as well as the market as a whole. Since over the long run the stock market is expected to go up, index funds are largely considered a good bet for investing.

Index funds have an additional benefit. As a rule, you pay a lot less in management fees for an index fund than you pay for a so-called “actively managed fund.” Please click here to see how low fees impact you in the long run.

Vanguard, the largest fund manager of index funds, also charges the lowest fees. Other companies such as Schwab and T. Rowe Price offer index funds, but they usually charge higher fees that simply diminish your annual return.

If you are interested in index funds, I suggest that you discuss index funds with an advisor at Vanguard or another company. Take care to only discuss index funds and not “managed accounts”. Fund management companies would like to get you into “managed accounts”, because they can charge you fees for “managing” your savings on top of the management fees you pay for managing the fund itself. Once you have decided on a savings strategy, you do not really need your savings to be “managed”. It is best to let such savings run on autopilot and to check on the performance and suitability of the savings strategy about once a year. The only time you may want to consider setting up a “managed account” is if you would like to get help with managing your savings. In this case, an account manager will help you allocate your savings, monitor its performance with you, as well as suggest and make any agreed-upon adjustments to the allocations.

Whenever you choose an index fund, you don’t have to bother to choose a mix of individual stocks or mutual funds to perform for you. Using index funds will make investing in “the stock market” fairly simple. In addition, index funds tend to do better on average than mutual funds; so it makes your stock choice easier if you go with an index fund.

When you invest in stocks, I would first invest only in the US stock market and suggest only buying shares in an S&P500 index fund. Once you accumulate some savings, you may want to sell some of your US stock holdings, say 10 – 25% and put these proceeds into an international index fund. For a start, simplicity is a good recipe in this case.

The S&P500 index is a broad index of US stocks that has a great track record in the long run delivering fairly steady returns to investors. On the other hand, international markets are riskier, which is why it is better for inexperienced investors to hold off investing in international markets for a little while. However, mixing international index funds with an S&P500 index fund will likely make your returns steadier, since you will have your eggs in more than one basket. When the US stock market or the S&P500 index does not perform well, it is possible that international stocks perform better. This could still give you a decent return on your investment or cushion the decline in the US stock market a bit.

Index fund companies such as Vanguard also offer bond index funds and money market index funds. Investing in these other index funds allows you to get exposure to three of the most important ways to to save your money, and you can do it all with just one investment management company.

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As a Socially Responsible Investment manager the most common question we hear from potential clients is “and adviser told me that socially responsible investing isn’t profitable” versus non-screened portfolio management. In general the adviser providing the dogmatic opinion does not offer any foundation for their opinion but this is their chance to influence the potential client especially if they cannot offer an Socially Responsible Investing (SRI) option for the investor. Unless you have a few arrows of your own in your quiver you may be quite likely shrug your shoulders and resign yourself to an non-screened portfolio versus a clean portfolio.

Probably due to the fact that I’m over 50 now with a repellent view of hyperbole and unsubstantiated opinions I have been uncomfortable with opposite view as well: socially responsible investing improves rate of return. It has been my view based upon empirical experience of managing Socially Responsible portfolios for 20 years that social responsibility is not a significant determinant of investment performance. Socially Responsible Investing is a highly subjective practice where investors can have divergent opinions on industries and companies. There is not unified screening standard amongst the ethical investing industry, each firm or fund makes their own decisions on screening criteria. While some funds screen for only 3 or 4 issues there are other funds that screen over a dozen.

Practitioners of ethical investing may draw attention that investors always assume a given level of risk with any equity investment but that the risk premium associated with SRI is less. Case in point the risks associated with Tobacco, Asbestos or BP and the Gulf oil disaster. However in my 20 years involved with socially responsible investing, screening stringency is often a matter of interpretation as BP was considered Best of the Lot for many years for funds that desired petrochemical exposure.

Let’s take a look at some of the academic studies that have touched upon the issue of the factors of Socially Responsible Investment performance:

* Moskowitz Award winner, John Guerard, Jr., director of quantitative research at Vantage Global Advisers, examined the returns of Vantage’s 1,300 stock non-screened stock universe and a 950 screened universe (The screens eliminated companies that failed to pass alcohol, gambling, tobacco, environmental, military, and nuclear power). He found “that there is no significant difference between the average monthly returns of the screened and non-screened universes during the 1987-1994 period. The “un-screened 1,300 stock universe produced a 1.068 percent average monthly return during the January 1987-December 1994 period, such that a $1.00 investment grew to $2.77. A corresponding investment in the socially-screened universe would have grown to $2.74, representing a 1.057 percent average monthly return. There is no statistically significant difference in the respective returns series, and more important, there is no economically meaningful difference in the return differential.”

Guerard’s conclusions are reinforced by other works:

* “Socially Responsible Investment: Is it profitable” Dhrymes, Columbia University July 1997 June 1998.Dyrymes concluded that: “that by and large the Concerns and Strengths of the KLD index of social responsibility are not consistently significant in determining annual rates of return.”

* Socially Responsible Investment Screening Strong Empirical Evidence For Actively Managed Value Portfolios. June 2001, revised December 2001 Stone, Guerard, Gultekin, Adams.”No Significant Cost” means no statistically significant difference in risk adjusted return”. In addition, they surmise that “the conclusion of no significant cost/benefit is not just a long term average. It has remarkable short term consistency!”

In my opinion this report presents a balanced view in that they concluded that the during the time of the study 1984-1997 the stock market rewarded the growth oriented style and that the performance of SRI investments could become “brittle” if markets were to become risk averse and adopt a more Value oriented style……….a remarkably accurate presumption!

Could the performance of SRI funds which have exceeded or lagged their respective benchmarks be in part due to size (average capitalization from micro cap to large cap) and style (Value or Growth)?

Fama and French of Dartmouth University examined the annual rate of return and beta (volatility) of an non-screened universe of Growth vs. Value from 1928 to 2009 by dividing stocks into ten deciles (groups) based on book-to-market value, rebalanced annually and found that Value had the lower risk while Growth had the higher risk. In addition, they found that the highest book -to-market stocks exceeded the return of the lowest book-to-market by 21% to 8% on average. Stock valuation was as significant factor in the Fama and French study where the cheaper the equity valuation the better the return.

Market Cap size was important in the Fama and French study as well (1992). Market cap size showed a significant edge to small and micro cap equities on a monthly basis. *Monthly returns for the smallest 10% of equities were 1.47% versus 0.89% for the largest decile.

It is our contention that there are attributes that could account for performance to equities other than social profiles and that concurrently a portfolio of socially screened equities with the highest book-to-value ratios could exceed comparative benchmarks largely due to valuation metrics and capitalization size. In a case of pure cherry picking the monthly rate of return smallest market cap and lowest book value to market price was 1.63% versus.93% monthly for largest market cap and highest book value to market price.

I tested this theory using data supplied by the Social Investment Forum and Russell Index regarding the 10 year average rate of return for socially responsible mutual funds versus their respective benchmarks trends do emerge.

Data as of June 30, 2010

Benchmarks

* Russell Mid Cap Value Index was the top 10 year performer +7.55%.

* Russell Mid Cap Growth Index returned -1.99%.

* Russell 2000 Value returned +7.48%

* Russell 2000 Growth Index To -. 92%.

Large Cap Stock Performance (Information BIS).

* 4-10 shows a positive investment. . Averaged annual returns.
Calvert Social Investment 0.14% (growth).
Neuberger Berman Social Responsibility 3.18% of the value ().
Social Walden 1.46% (value).

Parnassus Income 4.65% (value).

Performance Parts Small Cap.

* Money from two venture capital firms found thatpositive 10-year rate of return.

Ariel Appreciation +6.16% (Value)

Ariel Fund +5.62% (Value)

Disclaimer: While the sample size of SRI fund performance is very small. I gleaned data from only the profitable SRI funds for the last 10 years. The SIF forum does not show fund performance information for funds that have closed, merged or liquidated. It would be a safe presumption IMO that funds that no longer exist were weak performers since money will flock to where it’s treated best. Plus, hedge fund performance data was not available on the SIF site.

The results do fall in line with substantial academic works (Fama and French, Lakonishok) and it is possible that SRI performance should be viewed thru the lens of Value/Growth and Market Cap size.

A logical question that must be asked upon reading this might be: “If small market cap and low valuations are the sweet spot for investing, then why are there so few funds or managers focusing on this strategy?” Not to be obvious… ok, well lets be obvious: The small cap / low price to BV tends to be the focus of many private portfolio managers since our small size allows us the dexterity to invest in companies that are simply too small for billion dollar mutual funds. Successful funds tend to outgrow the size/valuation strategy espoused by Graham as assets become larger and the investment selection becomes narrower. But This issue should be considered the best in the future.

There are no companies mentioned.

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Real estate investing is a great way for middle-class Americans to make money and provide for the future. Lots of folks saw their IRAs and other investments fall during the sub-prime meltdown. For this reason, we’re seeing more and more average folks investing in it, which is less risky and potentially more profitable than stocks and mutual funds. It only takes a little maintenance, and you can watch your investment grow.

The Key To Making It – Doing Your Homework

If you wanted to become a pilot and fly 747s, what would you do? You’d have to learn to fly, of course, but you’d also have to know everything possible about aerodynamics, airplane construction, and everything else that pertains to flying. Real estate isn’t exactly aeronautics, but it requires a little study.

The more you know about markets, state and federal real estate laws, property management, financing, leasing, appraisal, and other aspects of the trade, the better you’ll be at making that investment. Remember that agents, lawyers, and other professionals get paid for this knowledge. Knowledge is power in this business.

Laws differ about everything from state to state. You can find local information at your library or online. Read everything you can get your hands on about investing in property.

Different Ways To Make Money In Real Estate

Most folks make money by investing in rental properties. You become a landlord or property manager, or you hire someone to handle the property for you. Unlike buying and selling, this requires a little bit of management on your part. You are also responsible for repairs and other renter needs.

You’re also responsible for paying taxes and the property’s mortgage. Some landlords charge tenants enough to cover these expenses, as well as a little extra so that they can turn a profit. However, sometimes this drives the rent too high and it becomes difficult to find tenants. Because of this, some landlords prefer instead to charge only expenses and make their profit once the mortgage is paid. This can be a nice sum of money each month, but it takes patience to wait until it’s all paid off.

Investment Groups

If you’re not keen on managing properties, you can put your money into an investment group. These are like mutual funds. Companies that buy a block of apartments or condos run them, and you can join the group by investing in one or more of the apartments. This is a great hassle-free way to make money, and all it takes is a little start up cash.

There are a number of ways to make money by investing in real estate. A good investment can provide steady income indefinitely. It’s just a matter of deciding what you want, doing your homework and putting up the stating cash.

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Spread Your Risk with Sector Mutual Funds

Sector mutual funds promote themselves as helping to spread the risk of investing. Instead of buying shares of a few companies in the same line of business, you buy a mutual fund that only invests in companies belonging to that sector. With the pool of money brought in from different investors, the mutual fund is able to buy shares of many companies. Thus, you have spread your risk from a few companies to hundreds of companies.

How Many Sectors Are There?

There are not a set number of groups or categories for sector funds. Many of the brokerage houses break them down into eight to twelve groups, and then further break the groups down into sub-groups. If you are looking for one particular group of companies it should not be a problem. While there are not near as many sector funds as typical mutual funds, each brokerage house has many to choose from. And there are always new funds being added. If one sector gets hot and starts growing, then the money flows in and usually a new mix of funds is created. But research those sector funds closely, because they have no history to study.

What Is a Good Sector For Me?

I would have to say that sector funds are something to consider after your overall portfolio is diversified. This is because sector funds carry more risk than a diversified mutual fund. And some sectors carry more risk than others. Any sector that is new or trendy, like the internet companies a few years ago, will carry more risk than say utilities.

With all that being said, any sector that you have researched and feel is going to grow, or a sector that because of technology is going to create some new markets, might be worth keeping an eye on.

Is There Still Too Much Risk?

It is true that buying a sector mutual fund instead of a straight stock purchase of one company will help diversify some of your risk. But does this eliminate enough of the risk that you can sleep at night. Many brokers do not promote sector funds, stating that the fund manager, being restricted to one industry, is not allowed to use all of his expertise. Other brokers promote them heavily, telling us to catch the hot industry in a diversified position.

As was stated previously, if the value of your investments is keeping pace with your goals, and you have some money that you want to speculate with, then maybe sector funds is a good place to start. Instead of trying to pick that next hot stock, pick a sector fund that includes that hot stock. This way you have bought the stock with some diversification.

Summary

Sector funds offer an investment tool that allows diversification within one industry. If after researching some similar companies you have a feel that this group is about to grow and prosper, then buying this selective mutual fund will help spread some risk.

However, as whole, sector mutual funds have more risk than most generalized mutual funds. If the industry has a downturn, then your diversification goes out the window. In these large funds, one company cannot pull down the whole group. But if the majority of the companies suffer a setback, then down goes the fund.

Be sure and remember that among the sector funds there is a difference in the risk. An older more establish industry is safer than a newer sector. A good rule of thumb is to not invest over ten percent of your portfolio in sector funds. Do your research carefully and proceed with caution.

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Mutual funds offer investors a conventional approach for adding commodities to their portfolios. With the funds, investors do not have to worry about picking individual stocks or becoming knowledgeable about futures and options on futures, two of the more difficult investing instruments in the financial marketplace today. Funds offer diversification and instant exposure to the commodities market an investor is targeting.

Investing in mutual funds that target the commodities market makes sense for many investors, particularly those who want to entrust the management of their accounts to others because of lack of expertise, minimal time to do research and place trades, or little desire to manage their own portfolios. This Instrument can be the right approach for many investors looking to add commodities to their portfolios rather than trade commodities outright.

Characteristics

There are two types of fund categories you should know about: traditional commodity funds and index-based commodity funds. There are four primary differences between the two categories:

o Investment management style (active versus passive)

o Investment holdings (stocks versus futures)

o Costs (higher versus lower)

o Risk-return profile (higher versus lower)

INVESTMENT MANAGEMENT STYLE

The most important difference between traditional commodity funds and index-based commodity funds is investment management style. Traditional funds employ an active style, which means the fund managers focus on security selection-stock picking-and market timing. The aim of active management is to pick stocks at the right times that will generate returns that outperform an appropriate benchmark index. In contrast, index-based commodity funds employ a passive style, which means that no decision making is done in an attempt to outperform the benchmark index. Instead, the fund tracks a certain index and generates a return that mirrors that benchmark.

INVESTMENT HOLDINGS

Traditional funds buy and sell stocks of commodity-related companies much like any other non-commodities-related fund. Conversely, index-based commodity funds do not hold stocks but instead hold futures and options on futures. Although the holdings may differ, each type of fund provides investors with exposure to and a means to invest in commodities.

COSTS

This is another area in which the two types of funds differ greatly. Because of their active investment management style, traditional commodity funds charge approximately two to three times the fees that index-based commodity funds charge. Index-based funds use computers to track their indexes, whereas actively managed funds have a full staff of fund managers and research analysts who command top compensation.

RISK-RETURN PROFILE

Traditional funds typically have more risk than index-based funds, but they have a higher return potential. Traditional funds exist only because they offer the potential to outperform the market. At the same time, they have higher risk than index-based funds since they are actively managed, and that means you must depend on the skills Not only managers. But the benefits of market In high-risk and high yield both advantages and disadvantages.

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