So you want to start investing in the stock market, but you have no idea where to start. Over the weekend, your favorite Uncle mentions something about a hot
mutual fund so you open the Wall Street Journal and get bombarded with pages of tiny print. There are quite literally thousands and thousands of Mutual Funds to chose from - - everything from Index Funds to one
called Global Interactive Couch Potato. Couch Potato!? Sounds like a fund my ex-boyfriend started. Finding the right mutual fund for you doesn't require a Ph.D., just knowing a few simple steps and
identifying your investment objective. A mutual fund is a portfolio of investment vehicles such as stocks, bonds, certificates of deposits and various other securities where a professional manager decides what to
buy, how much and when to buy and sell. Mutual funds use the money from "shareholders" to purchase their desired investments. These funds offer shares to the public. The value of a fund is
expressed in terms of its "net-asset value", also known as NAV. The NAV represents the fund's total value of its portfolio of investments divided by the number of shares outstanding. A new NAV (share price)
is calculated at the end of each day. Mutual funds are great for any level of investor. Whether you're investing a little or a lot of money, mutual funds offer a host of advantages that aren't available
anywhere else. For a low initial investment, you can receive partial ownership of a professionally managed portfolio of dozens of stocks, bonds or other securities. Voila`! Instant diversification.
Although diversification doesn't insulate you from swings in the market, it does soften the impact by spreading the risk over a variety of different investments. Mutual funds are also very liquid, meaning easily
convertible into cash whenever the need arises. You can buy and sell them anytime on the open market like a stock. Most funds offer automated reinvestment programs and even automatic periodic pay outs for
individuals who want regular income. Now all these great benefits aren't free, ah shucks. The mutual fund managers are paid an annual fee, typically ranging from 1% to 5% of the fund's average
investment value. Some mutual funds assess a sales charge when you purchase shares, commonly referred to as a "sales load". Another type of sales fee called a "contingent deferred sales charge" is deducted
from your account if you sell your shares before a specified period of time elapses. A few mutual funds charge a special fee called "12b-1" for advertising and marketing expenses. As part of your evaluation
of mutual funds, remember to subtract all the fees charged to calculate your total return. If at all possible, it's best to minimize the amount of fees paid MsFiscallyFit's motto is "Why give your money away". Although there is a potpourri of different funds to
choose from, why worry yourself over "couch potatoes" (there is always one available on a Sunday afternoon during football season), it's best to start your investment foray in an Index Fund. An Index Fund
duplicates the holdings of the Standard & Poors ("S&P") 500 Index by investing equally in the top five hundred stocks of the industry leaders like Coca Cola, General Electric and IBM and thereby reflecting the
S&P 500 Index's return year after year. Interesting enough, the S&P 500 Index is the benchmark that mutual funds are commonly compared to, but yet only about 20% of the vast number of funds available
consistently outperform the S&P 500's average annual return. So by just investing in an index fund, you stand a good chance of receiving a solid return over the long haul and
.it doesn't require the long hours
of research necessary to identify a good fund. MsFiscallyFit
says "KISS Keep it Simple Smarty!".
Go To Part 2 How to Evaluate and Select the Right Index Fund for You. |
