Mutual Funds
By Jessie Ruckman
I double-dog dare you to google “investments”, and see how many confusing Web sites and scams pop up for your viewing delight. Just click on the majority of links, and you’ll find that it’s a crapshoot as to whether you’re going to invest in your future, or get taken for a financial ride. Solution?
Be smart. There are, of course, safer Web sites sponsored by more recognized financial institutions such as Charles Schwab, Merrill Lynch, Morgan Stanley, and JP Morgan, which are investment firms that seem to have been around since our parents were in Pampers. But along with those big names can come a lot of information that is not for beginners, and can serve to confuse the novice investor. There is a lot of techno-investor jargon that is as confusing as a purple cow in a jogging suit.
If you don’t want to read a bunch of jargon where you have to look up every term, try more beginner-friendly Web sites such as http://investopedia.com, where you can simply learn about investing, and how to go about it. Personally, I hate being talked to as though I’m an idiot, and as though I couldn’t fight my way out of a paper bag without directions. Therefore, I like Web sites that are designed more for beginners. For example, try this site at http://www.investopedia.com/articles/younginvestors/07/business-college.asp for tips tailored specifically to young investors such as IPFW students, and people who are new to the investment scene. This site comes complete with a dictionary, so you can conveniently look up terms such as “options & futures”, and “technical analysis”.
See? Investing can be easy if you know where to search, and Web sites can actually help you to learn about securing your future without making you feel like a complete idiot.
What can we learn from Fool.com?
Let’s face it; investment can be a scary proposition when one takes into consideration the current market climate. Putting a small percentage of your earnings into an invisible fund that are ultimately in the hands of someone you’ve never met takes a lot of faith.
While there are many upstanding brokers and financial planners who will watch your money grow, one must always be on the lookout for the unscrupulous ones. For every scrupulous broker and investor, there is likely to be someone who will steal your money and run to Rio.
The point of this didactic little rant is twofold: be aware of who you invest with, and check out mutual funds if you would like to step into investing with a safety net.
Mutual funds are typically run by a fund manager and are comprised of multiple types of investments such as stocks, securities and short-term money market accounts. Basically your money is not being funneled directly into one account where your money either compounds greatly or disappears, leaving you broke. Mutual funds are basically a security blanket for the investor; these funds diversify your portfolio and reduce the chances of losing your @$$ because of one poor investment.
I, however, am not well versed in the world of mutual funds, so The Motley Fool at http://Fool.com has provided some key factors that should help aid in understanding mutual funds. For more information, check out that Web site as well as Web sites such as http://InvestmentTools.com or http://Investopedia.com.
Advantages of Mutual Funds (All info from http://Fool.com)
* Diversification. Buying a mutual fund instantly gives you holdings in several companies.
* Liquidity. A mutual fund investment can be converted into cash upon your request, like an ATM.
Disadvantages of Mutual Funds
* The (Lack of) Wisdom of Professional Management. The average mutual fund manager is no better at picking stocks than the average non-professional, but charges fees as though he or she is.
* No Control. Unlike picking your own stocks, a mutual fund puts you in the passenger seat of somebody else's car. It’s like your mother making you eat Brussels sprouts, even though she knows you’d rather eat dirt…but they’re good for you.
* Dilution. Mutual funds typically have such small holdings of so many different stocks that great performance by a fund's top holding still doesn't make much of a difference in a mutual fund's total performance. In English - If stocks in that company shoot up 200 percent, your fund still will likely see only small gains.
* Buried Costs. Many mutual funds bury their costs by hiring salesmen who do not make those costs clear to their clients.
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