Mutual Funds & ETF

- Automatic Reinvestment of earnings. - Income checks sent home. - Information Services, toll free numbers. 24-hour service. - Websites filled with information, quotes on securities, prospectus' etc

(Fund Services) Features that you can expect from your mutual fund provider

-Diversification -Systematic Supervision, Professional Management -Switching Privileges

Advantages of Mutual Funds

-more like ETFs Funds have a fixed number of shares and trade on major exchanges like stock. The fund does not continually issue new shares as an open ended fund. A list of closed end funds regularly appears in the Wall Street Journal separate from the regularly listed Mutual Fund section.

Closed End

For as little as $500 an individual investor can buy into a portfolio of as many as 1000 different securities. Prior to mutual funds, an investor was faced with buying shares in individual firms; 100 shares in IBM at $165 per share, was an $16,500 investment. If you had the funds, you could buy IBM, and you would own one stock. A mutual fund with a minimum investment of $1000, you own a portion of a diversified portfolio.

Diversification

The systematic purchase of mutual fund shares regardless of the share price. Dollar cost averaging is the concept frequently quoted when investment professionals discuss the benefits of long-term mutual fund investing. Investors are encouraged to make periodic investments into a mutual fund and not try to "time" the market. History has so far proven that investors were well rewarded for not "trading" their investments. To implement dollar-cost-averaging, an investor would simply create an annuity for themselves by sending the investment company an amount out of each paycheck. That amount would be invested when the funds arrived at the investment company. Investments in a 401(k) plan are dollar-cost-averaging. Each pay-period, a pre-determined amount is invested into a fund of the employee's choosing.

Dollar Cost Averaging

An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. *ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

Exchange Traded Funds

Forbes Mutual Fund Survey is published each August and is known for its ratings and coverage of many, many funds.

Forbes Magazine

-Open End -Closed End -Load -No-Load

Fund Characteristics

The Standard & Poors (S&P) 500 is the most widely quoted Index in the world and represents a diversified list of 500 companies. The index is not managed, S&P chooses the companies that are used to fill the index, companies that best represent the market and different industries. Mutual fund managers that manage stock portfolios are most times graded against the "general market," the S&P 500. After studies on the S&P 500 revealed that it's performance was beating the vast number of professional money managers, mutual fund companies began offering an Index Fund that mimicked the famous index. S&P 500 Index funds are some of the largest funds in the world and they consistently outperform about 70% of all stock funds. The investment company simply buys stocks of the 500 companies that constitute the index. When S&P replaces one company with another, the fund follows the move, selling one company from the fund and buying the stock of the company that is being added to the index.

Index Funds

Lipper Analytical provides ranking research for the Wall Street Journal. In the Monthly and Quarterly Mutual Fund review sections, the Journal's mutual fund listings are accented by letter grades to indicate the performance of a particular fund within that funds investment objective. Grades are just like school: 'A' is best, then 'B' 'C' 'D' and lastly 'E' Just like Morningstar (above), just letters instead of stars.

Lipper Analytical Services

A fund that has a "load" has a sales charge applied against an investment. The "load" may be between 1%-8.5%. Front end loads are levied against incoming deposits or investments. A 3% front end load, for example, would charge $30 on a $1000 investment when the investment is being made ($970 would be invested). A Back End load would levy the sales charge against funds that are being withdrawn from the fund. Loaded funds are just as popular as no-load funds. Of the numerous studies done on the performance of the two, there is little correlation that load funds (because they have a sales charge) would outperform a no-load fund. As an investor, make a mutual fund selection from the fund type and investment objective that fits your own investment style and risk level, not strictly on the basis of load.

Load

This is just like a money market account at a bank, it is where idle cash can be held between investments. The money earns interest similar to a bank savings account.

Money Market Funds

A big name in mutual fund research, Morningstar rates funds using the 'stars' system: A five star fund is in the top 10% of all funds within that investment objective with respect to their returns. A four star fund is in the next 22.5% of all funds within that investment objective with respect to their returns. A three star fund is in the middle 35% of all funds within that investment objective with respect to their returns. A two star fund is in next 22.5% of all funds within that investment objective with respect to their returns. A one star fund is in the bottom 10% performers of all funds within that investment objective.

Morningstar

is an investment company that raises money by selling its own shares and then invests those proceeds in a variety of securities. Many times, a mutual fund is described as a 'pooling arrangement' because many investors are 'pooling' their money to purchase marketable securities. - allow investors with limited funds, limited time and limited knowledge of investments to earn a market rate of return.

Mutual Fund

-Morningstar -Lipper Analytical Services -Forbes Magazine

Mutual Fund Rating Agencies

A fund that is no-load has no sales charge. Money invested is deposited directly into the fund.

No-Load

The majority of mutual funds in the market are "open ended." The fund continually sells new shares to the public, unlike a closed end fund (see below).

Open End

Part of the Investment Company Act of 1940 is the requirement that investors be supplied with a Prospectus of the Mutual Fund at time of investment. The Prospectus contains information about the fund that the Securities & Exchange Commission deems essential for the investing public. The Prospectus is the place where the fund company discloses all of the particulars of the fund. For example, if the fund is a load or no-load, if it is an open-end fund or closed-end, what kind of stock or bonds that it may invest in and in what quantities, etc. A fund may have a restriction that it may only invest 5% of its money in a particular company, that it may only have a certain percentage of cash on hand, that it can only hold a certain percentage of bonds in the portfolio or if it can hold bonds at all. The Prospectus is the single document that the investment company will insist that you read before sending them money. Investment companies and brokers have gotten into big trouble in years' past for not sharing this document with investors or potential investors.

Prospectus

Invest in a particular sector or industry. An example of a Sector fund is the Fidelity Computer Fund, the Brokerage fund or the Japan fund. Each of these specialize in companies within those industries or, in the case of the Japan fund, a particular geographical area. The fund continues to offer a diversified portfolio to the investor, but it is more narrowly focused than a general stock fund that may have investments across several industries.

Sector Funds

Especially with large fund companies, an investor may "switch" their assets between funds thereby taking advantage of market changes. Some fund families hold over 200 different funds. These companies have been very successful in drawing investors into their funds; with the large number of choices that we have, we can move investments quickly and easily out of one fund and into another.

Switching Privileges

Those of us that do not have the time or expertise to manage our own portfolios can depend on the professional help of a money management team. The fund manager conducts the necessary research and makes investment choices for us.

Systematic Supervision, Professional Management

Look in the Wall Street Journal's Mutual Fund section. There you will see the Investment Company name in bold, followed by the individual funds that the investment company offers to investors. A typical, daily Wall Street Journal Mutual Fund section is good for watching investment that you already own. There is not enough information on a daily basis to select a fund from these listings for initial investment purpose. The investment objective, fund performance or Load/No-Load indication are not shown. The month-end and quarter-end mutual fund tables in the Journal contain all of that information including expanded tables on the fund's performance over extended periods of time. What is shown daily, is the Net Asset Value of the fund, or NAV. There is a simple and not simple explanation of what the NAV is: Using the simple explanation it is the price-per-share of the fund. Looking at the Journal, pick out an NAV. Let's say for example the number is 30. This means that fund's closing price-per-share for the day is $30. If you sent a check for $3000 to that fund to invest, and your check was invested that day, you would have bought 100 shares of that fund. Simple. After your purchase you may be naturally curious how your fund is doing over time and by checking the NAV in future information sources. The more difficult but necessary explanation of the NAV: It is the assets of the fund, minus the liabilities, (which equals net worth), divided by the number of shares outstanding. The fund's price is set by this calculation each and every day and it represents the per-share value of the fund. In an example, say the fund has $100,000,000 in assets and $10,000,000 in liabilities with 3,000,000 shares outstanding. The NAV would be: ($100,000,000 - $10,000,000) / 3,000,000 = $30 per share.

Wall Street Journal Listing, Fund NAV (very important)