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