Portfolio Management
Investment in Mutual Funds
The Keys to Picking a Bond Fund
If you don't want to have all your assets in the stock market, that means you'll need to consider either cash or bonds for your portfolio. Many people admit that when it comes to investing in bonds, they don't know where to begin to evaluate the alternatives. We've been in a somewhat unusual situation in the last year where the yield curve has been flat or even inverted. The yield curve shows you the range of yields you can receive depending on the time to maturity of the...more
What Everyone Should Know About Mutual Funds
The goal of this article is to introduce each of you to some of the less transparent issues I consider in order to select better funds for an investment portfolio, to help you get better returns with lower costs. For many years, my most popular stock market investment vehicles have been No-Load Mutual Funds. They still are, for many reasons. Firstly, by design they have the ability to offer excellent diversification. Secondly, they have an active manager that should be knowledgeable and...more
Two Ways to Protect Yourself From Rising Interest Rates
By now, I am sure that you are familiar with the inverse relationship between bond prices and interest rates. When interest rates go down, as the have the past few years, bond prices go up. When interest rates go up, as they are now, bond prices go down. During the down market of 2000 to 2002, many investors loaded up on bonds for the safety vs. stocks. With interest rates increasing, many people are now seeing the value of their bond portfolios eroding. For them, there are two ways to...more
Using Absolute Return Funds to Protect Yourself From a Falling Stock Market
Unless things turn around this year, we will have had a declining market in four of the past five years. Many analysts, me included, are predicting that the next 10 years in the market will not be as good as the past 10 years has been. If we do have a falling stock market, what can an investor do? When you buy an index fund, you expect that if the market goes up your fund will go up. If the market goes down your fund will go down. An absolute return investment strategy is different. If you...more
Americans are investing a greater share of their retirement savings in mutual funds. The number of mutual funds available through employer-sponsored plans continues to increase, and 25% of the $12.9 trillion retirement market was invested in mutual funds at the end of 2004. (The Wall Street Journal, August 23, 2005; Investment Company Institute, August 2005, most recent figures available) Why do people trust their savings to mutual funds? Mutual funds provide a level of diversification...more
Mutual Funds vs. Stock Ownership: Which is Best for Your Investing Style?
When you purchase a share of stock, you purchase a piece of a company. When you purchase a share of a mutual fund, you are purchasing a collection of stocks, bonds, and/or other securities with a group of investors. These shares are managed by an investment company. So, which is better for your investing style ? a stock share or a mutual fund share? The answer is, ?it depends.? Managing yourself or leaving it to the pros. If you have the time to research and manage your investment...more
Mutual Funds: More Bang for Your Buck
With the recent corporate scandals still fresh in investor's minds, where can one turn to invest with relative safety and have the prospect of a good rate of return? Interest rates are still near historic lows, suggesting that money market accounts and bonds are not the places to get those returns. Individual stocks promise decent returns, but are very volatile. It requires a great deal of money to properly diversify into an adequate number of stocks, and commission costs eat into any return...more
Avoiding the Most Common Mistakes in Mutual Fund Investing
Mutual funds have become the investment of choice for millions of individual investors. Unfortunately, with a frustrating stock market, international instability and questionable corporate practices, too many people are making it worse by following their emotions rather than using common sense. "As a financial planner, I frequently see people who have ruined their portfolios by selling at the worst possible time, then buying again after everything has gone back up" says Tom Wade, a Certified...more
Do You Know What You?re Paying For?
A study published in the Journal of Financial Research indicated that the fees charged by the average stock fund were unchanged during the 1990s (Mutual Funds, July 2002, page 55). That may have been good news back then, but now that stock market returns have dropped, fund expenses as a percentage of your return might actually be higher. Therefore, this may be a good time to figure out what you are paying for and how you're paying for it. For example, say that you have a municipal bond fund...more
Skip Plan B (Along with Plans A and C)
Some mutual fund families offer several classes of shares that differ in the way they charge fees to shareholders. Classes A, B, and C are the most common. The front-end "load" typical of Class A funds is a sales charge paid when shares are purchased. Class B funds carry no initial load. Instead, they have a back-end sales charge that is paid when shares are sold, but that load declines over time. Class C funds may at first appear to have no load, but their other high annual expenses continue...more
Mutual Distrust and What You Can Do About It
When my Daddy's car was getting low on gas and he'd roll by a garage that didn't have its fuel prices posted on big signs, he would observe that the reason they weren't displayed was because the owners weren't very proud of their prices. The same might be said of investment and financial service providers. I am endlessly dismayed by the information some brokers, mutual funds, and other industry providers exclude from client statements. It's often difficult or impossible to determine,...more
If you can't beat them, join them. That's the approach many new stock investors take. The stock portion of their investments consists of only an S&P 500 Index mutual fund. And why not? In past years, mutual funds based on this popular measure of the U.S. stock market have outperformed many actively managed diversified stock funds. Buying the Market? Like other index funds, an S&P 500 Index fund invests in a majority of the same stocks, in virtually the same proportions, as the market index on...more
How Enhanced Index Investing Can Be Used To Enhance Your Investment Portfolio
In the 1970s, firms like Vanguard began offering passively managed index funds to U.S. investors. Unlike actively managed funds, index funds don't try to beat the stock market. Instead, they mimic the entire market or certain market segments with low operating expenses, low turnover, and diversification. Studies show that indexing approaches outperform many actively managed approaches over the long-term. Consequently, investors already have trillions of dollars invested through traditional...more
The ABC's of Investing and Why You Should Avoid Them
If you're not educated on the ABC's, you could end up with a D or an F in portfolio management. The ABC's I'm referring to are the share classes of commission mutual funds. "A" shares are where you pay a commission upfront for a mutual fund. The typical commission is from 4% - 6% of the amount invested. If you invested $20,000, you would probably pay a commission of around $1,000 for the transaction, therefore leaving you with a balance of $19,000. For larger amounts, companies usually...more
Why you should hate Mutual Funds?
For decades, mutual funds were the favored investment vehicle for the majority of the investing public. The primary reasons for their attractiveness are the simplicity in executing the investment ("all I do is place one call to my broker and I own all these stocks") and the perceived diversity within a particular fund ("I can't take a bad `hit? because I own so many different stocks within my fund"). As a result of this overly simplified view, money has flowed into the mutual fund industry...more