Entries Tagged 'Mutual Funds' ↓
April 29th, 2009 — ETFs, Investing, Money market, Mutual Funds, Online Savings Account, Savings, stocks
Before the economic crisis, plenty of people invested in index mutual funds as a way to diversify and ride the market without knowing too much about investing. Whether you continue to invest in index mutual funds depends on what you think the future will hold. Do you believe that the world economy will grow? Do you believe that US economy will grow? Today we aren’t so sure. When you look at a major stock index, you are seeing an indicator of what investors think will happen to economic growth. Used to be, a whole year ago, you could make good money buying index funds. Today? Not so much. Still: if you are in for the long term, are index funds for you?
It’s important to learn how do mutual funds work, if you’re not clear on the specifics. Long term (and we don’t know exactly what that means), stocks are likely to go up. Eventually. But at what rate? How long will it take? Is this downturn “different” than the last time? It all makes things very difficult for the investor that use to spend ten minutes a month sending money to their index fund in their 401(K). Yet with all the many indexes around the world, there may be some opportunities there.
For index mutual funds, the fund share price will change according to the index performance. For example, thousands of mutual funds use the S&P 500 as the base of their portfolio. But the S&P is heavily weighted with financials, so there has been a real loss for investors who chose that index fund. you’ll also find there are many differences between funds for operating expenses and “load” fees. Fees and commissions can compound a loss in share price.
When you’re looking at index funds, you may also consider looking at Exchange Traded Funds, or ETFs. These are really just baskets of stocks, and don’t require the same active management as do mutual funds, even index mutual funds. You can choose ETFs that include the best of certain stocks or industries, but leave out the financial companies or other industries you want to avoid. You will also find lower fees for ETFs vs. most index funds. For the long term investor who wants to put certain amounts in each month, you want to stick with low fees. but today, even with index mutual funds, you don’t want to think that you can simply choose the best mutual fund, send your money, and in ten years you’ll be rich. For example, as of today, all gains for the past ten years were wiped out with the rcent market downturn. So again, what is the “long term” time horizon you are comfortable with?
The best strategy for investing in index mutual funds is one where you review regularly, move your funds according to market conditions, and don’t expect it to be like the old days a whole 10 months ago – you will have to be more actively aware of what your money is doing to avoid losses.
To an extent, diversification of your portfolio can help, if you add bond funds, emerging markets and other different types of indexes to your mix. In this crazy market, be sure you are knowledgable about what stocks you ar invested in, even if you’re investing in an index fund. That’s the best way to avoid big losses in your index mutual fund, and enjoy long term gains.
April 18th, 2009 — Bonds, ETFs, Investing, Money market, Mutual Funds, Retirement, stocks
Mutual funds have been very popular, but do investors really know how do mutual funds work? Even in hard economic times, mutual funds are still one of the most popular investments on the market today, mainly as a result of retirement funds. For example, there are more than 10,000 different mutual funds available on the market to choose from.
There are many reasons for their popularity, but it could be due to historically good returns, or that they are easy to buy and sell. With the billions flowing into 401(K) accounts, mutual funds also gain the lion’s share of such investment. They also offer a way to diversify and dilute risk.
Here’s how mutual funds work: A mutual fund takes money from investors looking to invest in stocks, bonds, or a variety of other securities. It is basically a conglomeration of multiple individual investments. As this grouping of investments gains or loses value, investors will gain or lose also. When a mutual fund pays dividends, the investor receives his or her share. Mutual funds are professionally managed, and because of the variety of investments, can help investors be diversified. Investors have been led to believe for some time that mutual funds can do a large part of the investing work for an investor.
As for the business side, a mutual fund is a company that pools money from many investors and then invests the total on behalf of the group, in compliance with a specific set of investment goals. Mutual funds raise their money by selling shares of the fund to the public, in the same way that a company sells ownership shares of stock. It is this pool of funds that the fund company will use to make various investments, using vehicles such as stocks, bonds, and money market instruments.
When a shareholder purchases a share in a fund, they receive an equity position in the fund and, by extension, a share of each of the fund’s underlying securities. Usually, shareholders may sell any or all of their shares at any time, but as with other investments, the price of a share will change daily, based on the performance of the underlying securities in the fund.
When choosing a mutual fund, you should keep in mind your personal financial plan and goals. To start, don’t just rely on features such as past mutual fund performance - these do not reflect future performance in any way as many have learned the hard way today. Instead, start by determining your financial priorities, what financial resources you have, how you consider investment diversification, your feeling about how much risk to assume, and what your time horizon is for your investment goals.
If you only look at total returns you are seeing only half the story. Mutual fund returns show past performance, but even if the returns are high, are they competitive with the market for comparable investments? And will it necessarily reflect how a fund will do in a poor market if the returns have been gained only during up years? You should do your research into the underlying investments, fees, and performance before assuming a good total return means the fund is a quality investment. be sure to compare it to other similar funds over the same period. Using research, you can find what are the top mutual funds for your investment style and goals.
As it is often said, past performance can’t predict future results. After the recent downturn in the market, it’s clear that ever-rising values have hit the wall. It’s not certain either when or if the market will return to consistent growth. So, it is becoming all the more important to understand how mutual funds work, what the underlying investments are, and how they can fit into your long term investment plan given the current market conditions.
April 16th, 2009 — Cash, Investing, Mutual Funds, Retirement, Savings
When your retirement money is invested in a really bad market, the first thing you want to do is think about reallocating. Reallocating means changing the portions of your money you have invested in each mutual fund. As you have seen, your 401(K) provider probably lists suggested allocations for your portfolio based on your age, and consists of what percentage your money should be in stocks, what percentage in bonds, and sometimes they tell you a percentage of your 401(K) to put in cash.
But these percentages go out the window in a recession or depression, because you want safety no matter when you are retiring. For the past year, stock prices have plunged. The allocations are probably wrong for your particular risk appetite. And if you call your 401(K) provider or employer, as I have, they will probably tell you, “Stay invested!” or “We feel the allocations are appropriate.”
Well, they really just don’t want you to move your money!
No, you have to learn how to reallocate your stocks on your own – based on a new market, and wait until things change or get better. There is no reason to stay in losing funds when you can reallocate to wait until a change for the better.
Now if you’re thinking of putting your 401(K) into cash, you should understand that that doesn’t not mean taking your money out of your retirement account. this could incur penalties that total a large percentage of your money – so don’t add penalties to your losses.
When you invest in your 401(K) instead put it into cash vehicles. Your broker will offer at least one or two of these accounts, since their plan allows for older workers nearing retirement to move into safer investments. These are the investments you want to take advantage of for now.
For example, if your broker offers a sample portfolio balance for someone within 3-4 years of retiring, use that for the their safest vehicles. some of these might be bond funds (usually government bonds), and some will be savings or money market options.
If you don’t want to take their advice, then see what funds or accounts they do offer, and move the portion of your money you want to protect into these vehicles. this is the way to move your 401(K) into cash, not by withdrawing all of your money. Then as the market slowly gets better, start moving small percentages back to stocks, based on the performance of the stock market. This is the beast way to use cash n your 401(K).
March 18th, 2009 — Economic crisis, Investing, Mutual Funds
For the first time since the 1930′s, people everywhere around the world are experiencing a severe economic contraction, a recession which some believe will go into a depression. Everyone’s quality of life is being affected, and will probably continue to be affected, for some time. The big question is, how to survive a depression: what do you need to do to protect your savings, your retirement, your job, and make sure you have some solid footing somewhere.
The first step is to get a view of what’s happening out there. We’re busy, we’re scared – but you have to stay informed. If you haven’t already, start reading, watch informative tee vee (if you can find it: we recommend Bloomberg or in a pinch, CNN, but skip CNBC altogether). Read the web, follow the money.
Of all the experts being trotted out to talk on television about when to start investing again, I haven’t seen any who have said, Now’s the time. In fact, they say the opposite: Things are too shaky, too sketchy, the profits just aren’t there. So let’s forget the stock market for now. Hopefully, your money, or what’s left of it, is in a money market, a cash vehicle, under your mattress, or a high interest online savings account where you can at least earn a couple percent while yo figure out what else to do.
Will The Economy Will Improve?
Well of course the economy is always in transition – but get ready for an economy where things could plateau for a very long time. Prices could fall in a deflationary environment, but for the short run, it won’t matter, if we don’t have available cash to buy with. So, one step you can take is to hope for the best but prepare for the worst.
Start finding ways to cut back, and live on less, and if you are working, then stash the difference in a high interest savings account. Most of these are online savings accounts, with HSBC or ING Direct. You’re not alone, as many families are cutting back, or doing without, just to make ends meet.
Nearly every family has two working parents. Now adults are taking on more than one job apiece. Find a way to make extra money online, or start a side business, to bring in some extra cash, even if it’s only a little, like selling things on
eBay, or
Craigslist. Given that companies lay off employees as their profits go south, it’s a good idea to get ready with emergency funds in case you lose your job, and if you’ve already lost your job, more ideas appear below.
How To Save on Gas As Prices Climb
While not so high right now, many economists say gas prices will keep rising partly due to less availability, production cuts, and weather storms causing gas to climb. Or, speculators could easily drive the price up again as they did in 2008 which led to $4 a gallon gas.
Even though as of this post, gas prices aren’t that bad, the likelihood is that forces will work to keep prices from falling very far either. Oil producing countries won’t lose much money before cutting production. To save money on gas is pretty easy: Drive less! Or, drive a more efficient car. Combine trips, walk, bike, or just don’t drive around just for fun. Carpool to work, skip the mall, and you’ll save money almost automatically.
The Looming Food Crisis
Food prices are relatively low right now, but a big problem is that weather patterns are more unstable. In addition, ethanol production has caused corn prices to rise. In 2008, there were food riots when this caused high prices around the world, including Mexico and Pakistan.
Oil prices, weather, and futures speculation can all cause prices to rise suddenly. Two good ways to combat food price hikes, as well as save money are (1) grow your own, and (2) buy less processed food and (3) eat less meat. Guess what? Coupons are not the way to go! Coupons offer very bad return on investment. For hours of time, ou may save $3, $4 or maybe even $10, but if you spend 3 hours “couponing“, that means you got paid $3.30 an hour! Not worth it. Not to mention, most coupons are for salty, fatty, processed foods with less nutritional value than what you can make yourself.
So, start a garden, even if it’s a small container garden. Look for local farmer’s markets. And at your grocery store, buy “around the edges” where the produce, dairy and fresh food is. Reduce your purchases of processed food. And make one or two meals a week meatless, like pizza, rice dishes, beans or tofu. It’s really not that time consuming to whip up a wonderful quick dinner, that’s healthy and affordable.
Particular to groceries, try comparing price per pound for items across the board. For example, eggs are about $1.50 per pound, and tofu is about $2 a pound. The nutritional value is greater than frozen meals that cost $3-4 for a 9 oz. serving. Compare, shop smart and save.
Where To Find Fun Money
So if you’re broke, or just trying to save, does that mean you can’t have fun? No! As far as I’m concerned, eating “beans and rice, rice and beans” like Dave Ramsey says, is bull-bleep. There are plenty of
easy ways to save money. If you’re budgeting, just include one or two fun things in your budget. For example, we spent a weekend away by getting amazing airfares and hotel prices using sites like Priceline, and “raised” extra money by selling stuff on eBay to cover our purchase. We shopped hard, budgeted and saved up, and had a great time! You can do the same. Go out to dinner using coupons from Resturants.com, where you can buy $25 gift certificates for $10. Have a fancy potluck supper with friends. There are many ways to have a good time on a budget.
Discretionay income was always a joke anyway – since we all just used credit cards to buy our fun stuff! Real “discretionary” income is cash you really have that’s extra that you set aside not for paying bills, but to enjoy life. So what Dave Ramsey, if it takes me an extra six months to pay off my credit card!
Still, Try To Get Rid Of Credit Card Debt
Americans are said to have between $4,000 and $8,000 avergae credit card balances. We’ve had a
spending addiction for decades, and its coming home to roost. Plus, now that the credit card banks are hurting, they’re jacking up fees and interest rates, cutting credit lines – who needs it!? Personally, I’ve lived without credit cards for more than a year. It sometimes is hard to want to buy something, and not have the cash – but it sure feels good at the end of the month to NOT have that bill! Anything thaty’s not on my monthly budget, I don’t really need anyway.
Paying off debt should come after putting aside emergency money. You don’t want to be paying more than the minimum on your credit cards if you then lose your job an have no cashs aved up! So, better to put aside 3-6 months of income into savings, and then pay more than the minium on your cards.
Of course it practically goes without saying, don’t apply for more credit cards. Store cards, gas cards, al are relaly tempting when yo uhave no ready cash. But it’s part of the lerning process we’re going through – how to live within our means. When you live within your means, that’s great, but then you can start spendign less on your epxenses than you earn – and that money goes toward your welath! Better that it go to your own family’s wealth than the wealth of Bank of America’s credit card arm.
Remember that credit card offers like rebates, air miles or cash back all increase prices for everyone, and 80% of those “benefits” are never used. No matter what, you should use plastic only when necessary and not to support a lifestyle. don’t fal lfor the trap that the more you spend the more you’ll get back.
Help From Government Stimulus?
We are, most of us anyway, now the recipients of reduced taxes thanks to the stimulus plan. This will account for a few bucks each paycheck, but hey, every little but helps. Just dont’ use this s a reasonnot to stick to you r budget - you might consier putting it instead into your 401(K) or an IRA to make it work for your future.
Remember, saving even $10 a week is $520 a year, and that’s real money!
Tomorrow we’ll post the rest of this list of ideas about how to survive a depression, so stay tuned.
March 8th, 2009 — Bonds, Cash, Economic crisis, Investing, Money market, Mutual Funds, Retirement, stocks
You probably know where the term “con” comes from – as in, to “con” someone, or a “con game”. It is short for “confidence”. By gaining your confidence, someone rips you off.
That’s what we’re seeing right now. People are afraid. They do not feel confident – confident that they will keep their jobs, confident that they will keep their homes, confident that their retirement investments will be there when they are old.
Television, web sites, financial advisers, the analysts on Wall Street, the Wall Street bankers – all are playing a huge confidence game, and we, the investing public, are their victims. These vultures have really benefited, ever since the 401(K) really took off, and it was clear that regular Americans, now deprived of pensions and other ways to retire comfortably, would just shovel money in without really knowing anything at all about wise investing, on the promise that “over time, the market returns 8%-10%-14%” you name a figure. The whole thing has been a con.
But really, what I wanted to talk about is confidence, and how to regain it. Think: What would it be like to feel confident that your money was safe, right now? Think of the stress that would be off your shoulders. Think of how you would breathe easier, knowing that whatever the market was doing, up or down, you are in a secure position, not losing, not having to learn more than you have time to learn, or more than you can understand. Not know what the heck to do as you watch the market numbers go down.
What would it take to feel confident that your money was safe? A friend of mine was completely freaked out, and kept asking me, What should I do with my retirement accounts? (This was last November, she was down 15%.) I told her I thought the markets would keep going down, for some time, but that was just my opinion, and she needed to do what she felt was safe.
Her adviser (who was completely ripping her off in fees by the way, but she didn’t know that) kept saying “Oh no, you are in for the long term, don’t worry about blips in the market.”
Yet when I looked at my friend, all I saw was worry! She kept saying she hated the markets, hated having to think about being in stocks. She did not like the stock market, did not like that she couldn’t understand it. Her confidence was shattered, and so was her emotional well-being.
I asked her: Given how you feel right now, are you willing to bet what money you have left that not only will the markets stop going down, but that they will go up enough in one year to recoup what you’ve already lost? Her answer was no.
I said to her: If you are this uncomfortable in the stock market, take your money out! Get this monkey off your back! You can earn small but secure returns in money markets, CDs, and even learn later about government bonds or other less risky investments. Will you earn 8%, 10%, 12%? No, but that is never a sure thing anyway.
She moved all of her accounts to money market funds. Her relief was palpable. She could breathe again! She did not have to spend day in and day out worrying and watching tee vee, watching her hard word slip away from her. Today, she feels a whole lot better for sure that she’s missed the downturn in the last 4-5 months as well.
If you feel insecure being invested in stocks, if you do not have confidence that your money is in a secure place – then move it. Now. Today. If your advisor tried to talk you out of that, remember that they have a vested interest in getting fees from you. Move your money out of their claws. Your gut is at least as accurate as any investor – including me! No one has any answers in a market – possibly a depression – like this.
In case you care, and I’m not saying you should do any of this, here’s what I would do, and actually is what I am doing right now:
Move your money to a high-interest savings account. ING Direct is a good one, and if you also open chekcing, you can access your money wit a debit card. High Interest these days is just under 2%, but would you rather make 2% or lose 25%?
One your money is safe, then learn about what is out there that is cash or cash-like, and then move some money into those accounts. For example, there are government bond mutual funds like GNMA, or inflation-adjusted bond funds or ETFs where you can invest, and earn a few more points, and your money is relatively safe. Note: Funds and ETFs are not insured accounts. For FDIC insurance, you shoudl be in a money market, or CD, and verify it is insured with the institution.
You can then take some money out of savings, and open accounts with a low-cost broker like TradeKing. Buy into some of those cash-type vehicles through these low fee brokers.
Once you are securely set there, you can explore other ideas, like buying some gold or silver, or some commodities, or buying stocks in foreign countries like China, which are available as ETFs or within a fund. (I prefer ETFs but more on that another time.)
I also only put the company match into my 401(K). I put extra money into a ROTH and Individual IRA outside my company, into a self-directed brokerage account, where I can decide for myself where to invest my money – I’m not stuck with the investments and rules my employer decides is right for me. They’ve already proven they have no idea how to protect my retirement interests.
The bottom line is, you need to restore your own confidence. The so-called advisors are not going to help you. Television is not going to help you. If you are scared, fearful, anxious, take steps NOW to remove that stress from your life.
Your money can in fact be safe, and there are in fact places to invest where you can make money right now. Just not in the ways that the con men will tell you about.
