Introduction to Mutual Funds

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Mutual funds offer two advantages for the investor with limited time. First, each fund is a combination of equity investments and therefore reduces the risk of losses. Secondly each fund has a manager or management team that can and should change the investment fund’s portfolio around to find the best stocks for the fund.

Any casual look at magazines or investment of money or an Internet search will give you a list of mutual fund companies all tell you they have the best results and you’ll be well off with their funds. But are not all alike; Just look at the back of magazines such as Money magazine and see that the funds and fund families have the best performance.

Investing in mutual funds requires two or three key actions:

• Choose one to three families of mutual funds prefer to work.
• Creation of three or four groups of investment funds for you to choose the best one or two particular funds of each group in which to place their money.
• Decide how often you are willing to negotiate, in return for your investment portfolio (I discussed this in my articles about diversification).

Yes, these three steps require some time, some research on your part, or you can go with the recommendations. Good recommendations are in magazines such as, Smart Money and Kiplinger Money magazine. You can also find some software packages that have tried different funds and fund groups.

There are other factors involved in the selection of investment funds once you have decided on the main family to work with. This does not mean you can not see a group of funds from a wide variety of families, as it is another very valid for the creation of a group or universe from which to choose.

These other factors include:

• The class of funds. Typically, fund companies to create a fund, but then create “classes” for the fund. The most popular class is “no load”, ie there is no trade share to buy or sell the fund. However, other classes charge commissions to buy or sell or both to buy and sell (and these fees can be very expensive and take a right at the top of your investment dollars). It is a symbol for each class, so watch what the symbol of your choice.

• Maintain the requirements. Most companies require that you have a background of a minimum number of days before selling it. While they may allow to sell before the retention period is the family of funds will be charged a short-term trading fee (or penalty) to do so. In the case of a market crash, as we experienced in the beginning of the recent recession that may be worth paying the fine). Waiting times can vary by family and individual funds, usually 30, 60 or 90 days.

• In and out trading, also called return. A round is when you sell a fund and then buy it back. Mutual fund companies do not like that and if you do it too often, usually four pairs of the trade within 12 months, it will freeze your purse or even cancel your account. In other words, trade common in most mutual funds require careful action. The exceptions are Rydex and ProFunds funds, but they still have their unique characteristics.

• Diversity. A group of investment funds should not be to all of the same type, energy, for example, because then all that is harvested is one or another of the same. Instead of creating groups based on, for example, spheres, national, foreign dividends, strong, etc.

After selecting the type of groups, families of funds and actual funds in their groups, or make recommendations, they are willing to work with them and start investing your money. I will discuss the different approaches to this in the future.


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