| Mutual funds are very popular. In fact, they | | | | one to selecting a quality fund, they can |
| are the one of the most popular investments | | | | also lead you in the wrong direction and |
| on the market today. What does that mean in | | | | wondering what happened to that "great |
| numbers? There are over 10,000 different | | | | pick."Despite the distinctive characteristics |
| funds with over $4 trillion in | | | | of mutual funds - performance, management |
| investments!!Why are they so popular? For | | | | philosophy, & investment objectives - your |
| some, it is because of their great returns. | | | | specific selections should be chosen within |
| Others like funds because they are easy to | | | | the context of your overall financial plan. |
| buy and sell. Still others like them because | | | | Examining features such as past performance |
| they are diversified and less risky.A mutual | | | | are not where your studies should begin. The |
| fund raises money from investors to invest in | | | | point of departure is you; your financial |
| stocks, bonds, and other securities. It is a | | | | priorities; your resources; your approach to |
| package made up of several individual | | | | investment diversification; your willingness |
| investments. When those investments gain or | | | | (or lack thereof) to accept market |
| lose value, you gain or lose as well. When | | | | volatility; and your time horizon for a |
| they pay dividends, you get a share of them. | | | | particular investment.Total Returns are fun |
| Mutual funds also offer professional | | | | to look at and brag about, but simply looking |
| management and diversification. They do much | | | | at a fund's total return for the past year is |
| of your investing work for you.Mutual funds | | | | not necessarily a good measure of a fund's |
| have been around since the 1800's, but didn't | | | | quality. For example, investors often talk |
| become what we know today until 1924. Even | | | | about how well a specific fund did last year |
| then, they did not become a household word | | | | and how happy they are with that performance |
| until the 1990's, at which time the number of | | | | -- say a 16% return in an equity income fund. |
| people owning them tripled. A recent survey | | | | Well, in a given year that may or may not |
| shows that 88% of all investors have at least | | | | have been a good return for an equity income |
| some of their money in mutual funds.A mutual | | | | fund. That fund may have under-performed many |
| fund is a special type of company that pools | | | | or most other equity-income funds for the |
| together money from many investors and | | | | year. Returns should always be measured in |
| invests it on behalf of the group, in | | | | context with how other similar "categorized" |
| accordance with a stated set of objectives. | | | | (e.g.. equity income funds, growth funds, |
| Mutual funds raise the money by selling | | | | small cap funds, etc.) funds have performed. |
| shares of the fund to the public, much like | | | | So don't get overly excited by a funds total |
| any other company can sell stock in itself to | | | | return until you see how it compares to other |
| the public. Funds then take the money they | | | | similar funds over the same period.As it is |
| receive from the sale of their shares (along | | | | often said, past performance can't predict |
| with any money made from previous | | | | future results. But when comparing |
| investments) and use it to purchase various | | | | performance of funds, it is also wise to look |
| investment vehicles, such as stocks, bonds, | | | | beyond the results of one or two years. Most |
| and money market instruments.In return for | | | | experts suggest that a larger "window" of 5 |
| the money they give to the fund when | | | | to 10 years gives a clearer picture of |
| purchasing shares, shareholders receive an | | | | historical performance. Has your fund or the |
| equity position in the fund and, in effect, | | | | one you are considering performed well over |
| in each of its underlying securities. For | | | | this longer time horizon? Any fund can have |
| most mutual funds, shareholders are free to | | | | one good or one bad year, but if you are |
| sell their shares at any time, although the | | | | investing for the long term, you want a fund |
| price of a share in a mutual fund will | | | | that has a consistent track record. While |
| fluctuate daily, depending upon the | | | | that record doesn't guarantee future results, |
| performance of the securities held by the | | | | it gives you an indicator that may be to your |
| fund.Most investors pick mutual funds based | | | | advantage.Copyright 2006 Michael |
| on recent fund performance, the suggestion of | | | | SavilleMichael Saville has over twenty five |
| a friend, and/or the praise bestowed on them | | | | years experience in providing finance and |
| by a financial magazine or fund-rating | | | | investment advice. |
| agency. While using these methods can lead | | | | |