| Not everyone needs to know everything. I have | | | | stocks with the expectation that the growth will |
| an uncle who was recently honored as a | | | | continue. |
| university fellow at Lakehead University | | | | International funds will typically buy stocks that |
| (Congratulations, Uncle John). He specializes in the | | | | are owned by companies that are either owned |
| study of Banach spaces and abstract convexity. | | | | or operated outside the United States or the |
| Now I have no idea what any of that means and | | | | home country. |
| furthermore have no idea how someone can | | | | 3. What are mutual fund management fees? |
| specialize in it. So I am glad that I don't need to | | | | Someone out there is managing your money. |
| know that. But, in the field of math I do need to | | | | They are deciding which stocks to buy and which |
| know how to add, subtract, multiply, and divide. | | | | to sell. They take a salary. They have people who |
| No everyone needs to know everything, but life | | | | do research and analysis. They get paid. They |
| is a lot easier if you at least know some minimal | | | | send out information and furnish offices. Some |
| facts about important things. So here are the five | | | | pay for advertising. Who pays for it all? You do - |
| things I think everyone should know about | | | | the mutual fund investor. It is easy to find out |
| investing. | | | | what you will pay when you get a prospectus. |
| 1. What is a mutual fund? | | | | They will tell you the percentage they charge in |
| Mutual funds are places where a group of | | | | fees. They will also show you how much that |
| investors (everyday folk like you and me) pool | | | | would be in actual dollars based on a preset dollar |
| their money. Due to minimums or fees an | | | | investment. Always remember: when it comes to |
| individual investor might be limited to buying only a | | | | fees they are always included when you see their |
| few stocks. When your investments are so | | | | performance. In other words, at the end of a |
| concentrated, any poorly performing stock can | | | | trading day when a mutual fund posts their |
| have a dramatically negative impact on your | | | | returns, all fees have already been accounted for. |
| losses. Some mutual funds can be purchased with | | | | Mutual funds structure their fees in different |
| as little as $500 and give you ownership of | | | | ways. One way that funds earn money is by |
| hundreds of stocks. Mutual funds have different | | | | charging a load. For example, a fund might charge |
| goals and focuses depending on how they choose | | | | a 5% front end load. That means when you give |
| to invest. The greatest advantage of mutual | | | | them $1,000 they will take $50 as their fee and |
| funds is that your money is spread out between | | | | invest $950. A back end load is a fee that is |
| many different stocks. | | | | assessed when you take the money out. If a |
| 2. What do the terms 'large cap', 'small cap', | | | | company has a back end load of 1% and you |
| 'value', 'growth' and 'international' mean? | | | | withdraw $1000 you will pay $10 towards the load |
| Not all mutual funds are equal. They have | | | | fee and they would give you $990. No load funds |
| different purposes. Some will invest in bonds, | | | | will invest the full amount. No load funds will |
| others in specific sectors of the economy. Some | | | | typically have higher management fees. |
| mutual fund companies invest primarily in big | | | | 4. What is a prospectus? |
| companies. Others in small companies. Some | | | | A prospectus is an introductory booklet. Much of |
| might do a little of everything. It is crucial that | | | | the information will seem dry and useless. This is |
| you know the 'categorization' of your mutual fund | | | | because prospectuses are written for lawyers as |
| as that has the greatest impact of your | | | | much as buyers. However, the prospectus will |
| expected risk and return. Small cap(italization) | | | | introduce you to the management style. From |
| mutual funds basically invest in smaller companies. | | | | that style you can get a good idea at the level of |
| These stocks provide a lot more opportunity for | | | | risk you are assuming. |
| quick growth as smaller can grow twice as big, | | | | 5. Where can I buy a mutual fund? |
| twice as fast. On the other hand, because they | | | | Mutual funds can be purchased directly form the |
| are smaller there is a lot more opportunity for | | | | organization (fund family) who oversees the fund. |
| failure. Large caps focus on bigger companies. | | | | These days you can just get online and view all |
| They would buy stocks from places you have | | | | the important information. That organization will |
| heard of like Wal-Mart, Exxon, and General | | | | only sell their own brand of funds. |
| Electric. These companies are established and | | | | You can also purchase funds through an online |
| might be expected to provide steady results, but | | | | brokerage firm. A brokerage firm will allow you to |
| likely will not provide a surge of gains or losses. | | | | purchase mutual funds from any fund family they |
| Growth and Value refer to the style the fund | | | | have access to. You are not limited to only one |
| manager prefers for buying stocks. Value | | | | fund family. |
| managers look for great stocks that for some | | | | You can also purchase mutual funds through a |
| reason or another seem to be under priced. In | | | | financial advisor who works either independently |
| the mall they would be the ones looking through | | | | or for a brokerage firm. Your advisor will suggest |
| the50% off rack. Growth managers, however, | | | | funds, and make purchases on your behalf (with |
| buy stocks that are performing well. The stock | | | | an extra layer of fees). |
| has posted positive results so they buy these | | | | |