What are mutual fund?
Mutual funds are pools of money gathered from different investors that want to diversify their portfolio, a professional manager then is hired to invest the cash and attain the desired return. Investing in mutual funds gives you the opportunity to start investing with little money and increases the opportunity to lower the risk on your investment by diversifying. Investing in mutual funds can also help you invest without the long hours of research it takes to pick individual stocks.
Mutual funds usually charge fees called “Loads” and those fees can eat a portion of your return, keep in mind those professional managers don’t work for free. If you are starting with 1k-5k usually doesn’t make a big difference as opposed to those starting with 500k. Say you have 5k invested in a mutual fund and they charge 1% a year that’s as little as $50 a year for professional management, not so bad.
- -Some mutual funds charge sales fees called “loads”
- -Front-end loads, back-end loads, etc.
- -Many others are “no-load” funds
- -But some “no-load” funds can wind up costing you more than “load” funds over time
Annual Operating Expenses
Typically from 0.5% (or less) to 2.5% (or more). Many mutual funds do not match the market’s performance.
Open-end mutual funds: (>90% of mutual funds)
A type of Investment Company in which investors buy shares from, and sell them back to, the mutual fund itself, with no limit on the number of shares the fund can issue
Close-end Fund: (<10% of mutual funds)
A Closed-end Fund is a type of Investment Company that operates with a fixed number of shares outstanding the fund’s shares are issued by an investment company only when the fund is organized. After all original shares are sold, you can only purchase shares from another investor
Load versus No-Load Funds:
A Load Fund is a mutual fund that charges commissions when shares are bought it typically range 3% to 5%. This is used to compensate the financial representative along with the fund distributor.
A No-Load Fund is a mutual fund that does not charge a commission when shares are bought. Traditionally sold directly to shareholders
[quote style=”1″]It is important to know the type of funds because that’s where you are going to put your money, depending in the risk you are willing to take. [/quote]
Aggressive Growth Funds
Highly speculative mutual funds that seek large profits from capital gains
Mutual funds whose primary goals are capital gains and long-term growth they typically invest in high-growth companies.
Capital Appreciation Funds
Mutual funds that seek long-term growth of capital
How does it differ from a growth fund?
Most growth funds have a provision that states they will invest primarily in growth stocks, usually staying between 80% & 100% invested in the market
Mutual funds that seek both long-term growth and current income, with primary emphasis on capital gains
- -Sometimes own bonds to augment the income
- -Sometimes referred to as “Blend” (of Growth & Value)
Mutual funds that seek stocks that are undervalued in the market by investing in shares that have low P/E multiples and high dividend yields (we will learn more about this later)
- Often look for companies out-of-favor with investors
Mutual funds that emphasize current income and capital preservation by investing primarily in high-yielding, income-producing common stocks
- Railroads, Foods, Utilities, REITs, etc.
Real Life example of how a good mutual fund looks like:
Pick a Mutual Fund that…
This Course will focus more on Stocks than mutual funds, we are not saying they are a bad investment, in fact if you don’t have the time to do your research they are the best way to invest your hard earned money. At WallStCollege we focus on teaching you what Mutual Fund Managers do, so that you can take your own decisions.