| Mutual funds are one of the financial
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| | services, so they charge you a fee which
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| world's most popular investment vehicles,
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| | is sometimes called a "load."
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| and for good reason.
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| | Essentially, you are paying them to have
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| For a relatively small investment, these
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| | the heartburn and ulcers associated with
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| funds give individual investors the
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| | watching the stock market eight hours a
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| ability to buy a diverse portfolio of
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| | day, 52 weeks a year, so that you don't
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| stocks and / or other financial
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| | have to. Whether or not the fund managers
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| instruments - all in one transaction.
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| | earn their keep depends on how skillful
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| If you have just two or more mutual
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| | they are, and how the fund's fees are
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| funds, chances are that you're more than
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| | structured.
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| adequately diversified. This means that
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| | Load mutual funds charge either front-end
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| you don't have to worry about one bad
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| | loads or back-end loads. Front-end loads
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| apple (i.e. Enron) destroying your entire
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| | charge you a percentage of your initial
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| investment account.
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| | investment.
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| How Mutual Funds Work
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| | For example, if you invest $10,000 each
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| So how do these funds work? Each fund is
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| | into a pair of front-end load funds with
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| actively managed by a mutual funds
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| | loads of 3 percent and 5 percent, you
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| professional. This is someone who has
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| | will only be investing $9,700 and $9,500,
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| several years of experience analyzing and
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| | respectively. How long will it take your
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| trading stocks or other securities,
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| | funds to make up the $800 you've lost
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| probably has an advanced degree, and has
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| | right off the bat?
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| worked his or her way up the ladder to
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| | Instead of charging you up front,
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| what is essentially the top of the money
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| | back-end load funds don't charge you a
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| management profession.
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| | load until you withdraw your money.
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| The fund manager chooses the securities
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| | These funds are usually a better deal,
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| that the mutual fund owns. These funds
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| | because the size of the loads usually
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| can be composed of stocks, bonds, and /
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| | decreases the longer you leave your money
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| or other financial instruments.
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| | in the fund.
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| The types and balance of securities (i.e.
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| | For example, a back-end load fund might
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| 60 percent stocks, 35 percent bonds, 5
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| | have a load of 7 percent if you withdraw
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| percent cash / money market), and the
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| | your money the first year, with the load
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| investment objectives and strategies
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| | going down by 1 percentage point each
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| (i.e. aggressive growth or equity income)
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| | year, and reaching 0 percent by the
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| are listed in the mutual fund's
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| | eighth year.
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| prospectus.
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| | Mutual Funds - Just Say No To Your
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| This way investors know what they are
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| | Broker; Buy Direct Instead
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| getting into each time they buy new
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| | Typically, full-service brokers with
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| mutual funds.
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| | offices on Main Street only sell
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| Mutual funds are split into shares, just
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| | front-end load funds. This is because
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| like stocks. For example, a fund may own
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| | they receive an up-front commission on
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| 5,000 shares of Microsoft (MSFT); 10,000
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| | the sale of these products.
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| shares of General Motors (GM); 20,000
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| | Mutual funds are designed for average
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| shares of Alcoa (AA), etc., and be split
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| | investors - you don't need a broker to
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| into 100 million shares itself.
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| | recommend these funds for you, and you
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| If the net asset value (NAV) of the
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| | don't need to pay the extra sales
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| shares is $1 billion, then each share of
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| | charges.
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| the fund would be worth $10. The fund
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| | There are hundreds of good, no-load funds
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| manager buys and sells shares of stock
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| | that charge only a small annual
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| that the fund owns - you, in turn, can
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| | management fee (which load mutual funds
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| buy or sell your shares of the fund, but
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| | charge in addition to their loads)
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| only at the end of each trading day.
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| | available directly from fund companies.
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| No Load Mutual Funds vs. Load Mutual
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| | Most funds have a minimum investment of
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| Funds
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| | $2,500, but this can usually be waved if
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| So what's the catch? Well, mutual fund
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| | you commit to regular monthly investments
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| managers have to be compensated for their
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| | of as little as $50.
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