Mutual Funds...

I'm thinking of investing in mutual funds. I bank with Washington Mutual and they have this 5 different plans option where they range from low risk with small short term gains to high risk with large short term gains. (I'm planning to leave it in there for a long time so short term doesn't really matter much to me).

For those who have past experience with this, what do you think? Is it something you recommend to do or not do for any particular reason? How did it turn out for you? Any tips?

Jam it back in, in the dark.

Mutual funds can be just as risky as stock.. I suggest you learn what mutual funds are and do a bit of research on what companies are in your mutual funds..

The idea of a mutual fund is to take money from the pool.. Then after maturity you get your potion back with the return.. You can also sell the mutual fund at a discount on the market, and buy them at discounts on the market.. Some people sell them cuz they lost money and want to cut their losses.. which allows you to get a gain if the yield to maturity is in close range.

Mutual funds dont bring in a lot of money, because most plans are made so risk is low so the return is also low..

If you're young, I would suggest starting off with medium risk maybe.. Then as you age, start shifting into a more low risk category, by the time you retire, pull out all money to the fund and you should be left with the best earnings you could possibly make.

Remember, safer investments mean lesser returns.. So it all depends on age and selection.. Timing as well.. Look at inflation and poissible threats to the markets..

If you mutual fund is invested 50 percent in medical companies, 20 percent in internet companies and another 30 percent in standard businesses..

If there is a shortage of development in medical, your price goes down, but if internet is doing well.. It could compensate for the loss of medical.

In other words, talk to a representative and ask about which investments are for you...

if you got other questions, post em.. Ill do the best I can to answer.

.dc

There's nowhere I can't reach.

Sorry if this is a nobrainer question, but the main difference between stock and mutual funds is the fact that with stocks you're putting all your eggs in one basket as opposed to with mutual funds where you spread it around right?

Oh and I'm 20. Not sure if that's considered young or old when it comes to dabbling with these financial games...


Oh and thanks for the help.

This thing is sticky, and I don't like it. I don't appreciate it.

I'll admit I'm not the biggest fan of mutual funds. With that out of the way...

Mutual funds can be just as risky as stocks actually. It really all depends on the fund you're looking at. First of all, a number of funds concentrate exclusively on a particular sector, so even if you've got stock from a bunch of different companies, it doesn't mean you're much safer than someone who bought stocks. It might, however, protect you from incompetent management at a particular company, but it also means good management at another will be less profitable. But in the case of an event affecting the sector your fund concentrates on, you'll feel it. But I doubt the kind of funds you're looking at fall in this category so you probably don't have to worry. Still, you should look at what makes up the fund.

Second, watch out for fees. Mutual funds are managed funds, meaning someone who is (sometime supposedly) knowledgeable makes constant adjustments to the fund's composition by buying and selling stocks. That's all fine, but that means he has to be paid. And the money to pay him comes from your investments. And some mutual funds charge obscenely large fees when compared to their return. It might not seem much, but as in anything related to investment, compound interest is the key, and it also works against you. What you thought was just a small fee might end up costing you a few, or many, thousands of dollars once you decide to retrieve your money. And of course there's also a bunch of other fees that are sometime hidden, for example, fees when you invest money in the fund, or when you decide to remove your money from the fund. Make sure you spot them all before you invest.

Third, take a look at the fund's past returns. And by that I mean the returns for MANY years. Even if the fund had a 150% return the previous year, it means absolutely nothing. A number of fund will have negative returns for a number of years, then suddently a high positive return, then negative returns again. In the end, you'll lose quite a bit of money.

I'm not saying all mutual funds are bad, but a number of them certainly are. You just have to choose wisely, and to do that, you need to do a bit of research on your own. Same thing if you ever want to buy actual stocks someday, which isn't that hard, nor that dangerous if you know what you're doing.

Something you might want to look into are index funds. Essentially, they're funds that mimic a particular market index. For example, the Vanguard S&P500 index fund mimics the S&P500, essentially an average for the performance of large corporations. The main advantages are that they tend to have very low fees and you're pretty much garanteed to get the market's average returns. Don't take my word for it though, as I said you should look around and compare.

I am a dolphin, do you want me on your body?

Hey Techno, I just started looking into investments as well and had the exact same questions. As for tips, I cant really give you any since I am a noob myself.

What I ended up doing may be stupid but I just put some of my money in large cap stocks and mutual funds. I am still young and should take risks but I just want to start off with something safe just to keep myself sane.

I was speaking idiomatically.

If I were you I wouldn't bother with a mutual fund. Higher energy prices and the double threat of inflation and interest rates make's mutual funds and stocks a risk right now. Not to mention a weakened dollar could crap up all of the above.

Personally, I would (and am) moving on copper, silver, gold. (in that order) Perhaps platinum for some more diversity. Nobody has ever gone poor holding on to gold/silver, but plenty of people have gone poor by holding onto paper. Which is really the only thing that a mutual fund is. Just a piece of paper. All above commodities are physical assets. All of which do particularly well in economic slowdowns. All of which keep pace with inflation so at the very least you're not investing into an Enron and your investment is safeguarded.

This does bring some minor complications as to how you'd store it, but it's easily overcome with a safety deposit box. Or better yet even storing it in your home. It's not like you're going be keeping King Mida's stash of gold in your home. More likely you would tie it up in American Gold Double Eagle coins. (Canadian maple leafs work) Or Morgan Silver Dollars. Just keep in mind not to buy "collectors" coins. The premiums on those are very high. What you should be going for is bullion. All of which you can track down and buy wholesale online easily enough with very little effort.

Wouldn't be fair to give you advice without warning you of the risk. The US government has confiscated the people's gold in the past. However it's unlikely to happen again, but still possible. When it did happen only about 20% of the coins were turned in, and maybe 60% of the bullion bricks. This was under threat of a $10,000 fine and up to ten years in prison back in the 1930's. Quite a hefty punishment. Still, why I recommend you add copper and platinum into the mix. They're even more unlikely to be confiscated. (Or you could... you know just break the law)

Well, as far as how my advice has panned out for me. Two and a half years ago the price for a oz of gold was somewhere around 240 US Dollars. Take a look at the price right now. I still think there's plenty of room for an increase.
As far as silver goes even more potential.

^ I should have gotten paid for that advice ^

:biggrin:

What kind of toxic man-thing is happening now?

Seems like you got all the info you need.. But..
Here are the mian factors you should be concerned about:

Know your fees:
It's true, management fees are there, and there might be other fees, and make sure you understand, you cannot take your money back out within 3 months of the initial investment without suffering from a penalty, which means the bank get a percentage of the investment you made and you make no money.

in other words: 2% of $1.00 is nothing, but 2% of $100,000.000 is!



Go for a diverse investment:
Even if you have a mutual fund, make sure the the fund spreads it's pool of cash around the market.. This allows the fund to grow more (to me personally)

Investment money vs expendable cash:
Never mix the two terms.. Think of investments as money you dont have anymore.. Even though you have ownership in a stock/fund.. You gotta think like you dont have that money anymore.. It's main purpose is just for invsetments that's it..

Make sure your investment money doesn't tie up your spending cash/savings.. You should allocate enough for all the needs you have and wants too..


Credit:
If you have bad credit, or you have bills.. Make sure your bills are done and dealt with and your credit cards are paid off.. ANy money you make otherwise from investments will most likely be lost to interest payments (Never make the minimum payment on a bill/credit card)

Last but not least:
EXPLORE your options, the market has MANY MANY ways for people to invest.. Learn the terminology of investing if you can.. Pick up a dummies book on investments and learn how to read the markets.

Know what the dow jones index is, what nasdaq is, that inflation is, global threat,s and global emering markets..*emerging makerts are high risk but also high returns -- BUT VERY risky, most likely to lose your investment.

Learn about different investments - form GIC's, to Tbills -- Strategies -- like laddaring your GICs, or heding stocks --

You dont need to apply it, but it sure will help if you understand the basics of investing!


MOST IMPORTANT -- ANY MONEY YOU MAKE IN THE MARKETS, DUMP IT STRAIGHT INTO YOUR RRSP, ERSP, or any tax free/deferred investment you can! This will SAVE YOU so much money..
that's all I can offer.

dc.

FELIPE NO

Wow thanks for all the info guys. Looks like I've got a good chunk of research to do here. Maybe I'll pick up some sort of an "Investing for Dummies" type book.

Oh and thanks for pointing out the little factoid about fee's. The banker didn't metion a blip about those to me when he was "informing" me about the world of mutual funds. =/

What, you don't want my bikini-clad body?

First off, let's go with some definitions...

Definitions

Stocks are shares of individual companies that allow you to own a certain percentage of the company. The usual type that most people get is called common stock where you get dividends and voting rights on major corporate decisions like structuring the Board of Directors.

Mutual Funds are a collection of investment. Funds can be subdivided into what fund they concentrate in. The major types include stock funds, which are made up of a collection of stocks, bond funds, which concentrate in bonds, and other miscellaneous funds that deal in real estate and commodities (goods like agriculture, energy, etc.).

Exchange Traded Funds are also another option for you to spread yourself out in the market. They are sort of like mutual funds except there are no management fees associated with them, but you have to pay commissions when you want to buy and sell them in the market.

Preliminary advice
When buying funds, look for the following information:
1) Management fees - Generally, the lower the better. Management fees really blow because they take away from any gains that may have occurred during the year. Let's say the fund gives you a 10% return on your investment during the year, and the management fee is 2% (pretty high), you're only obtaining a 8% rate of return.

2) DO NOT BUY LOAD FUNDS - Brokers want to sell load funds in order to line their own pockets. The load imposes costs that go directly to the broker and they are costs that you should not have to pay for. Most of the crappy funds charge a load and the better ones (Legg Mason, Vanguard, Dodge and Cox) simply don't need to charge a fund when their performance is already pretty good. Experienced traders will research the fund and purchase it, and not rely on the broker to sell them a fund.

Lastly, if you're interested in funds, Morningstar is a good site for you to go and do research. They primarily focus on mutual funds, but they also dabble in ETFs and stock. Hopefully this'll help you get your feet wet. All in all, never underestimate the power of compounding that can be gained from investing and always diversify your portfolio to keep your savings afloat rather than take an unwarranted risk and buy a stock.

Jam it back in, in the dark.

I just give you two easy to remember pieces of advice!

1. High returns, high risk. No such thing as High riskless returns.
2. Only gamble with money you can afford to lose!

Generally, the prevailing rule of thought indicates a preference for passive market-tracking investments. Basically, an actively-managed fund (fund managers outright try to beat the market) does not necessarily trump a passively-managed one (fund managers merely replicate a market index, say the S&P 500). ESPECIALLY after deducting management fees. Theory also states that there's no way you can consistently beat the market, so why try anyway.

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There do exist funds that are somewhat passive (have low turnover) that still manage to beat the market (See Bill Miller of Legg Mason's LMVTX stock fund which has beat the S&P for 13-14 years in a row.). Also, if you're buying from managers that are replicating the index, you're probably better off buying ETFs because that way, you avoid paying those management fees.

Examples of ETFs that replicate the market include: SPY (S&P 500), QQQQ (Nasdaq index), and DIA (Dow Jones Ind. Avg).

This thing is sticky, and I don't like it. I don't appreciate it.

Originally Posted by Technophile

Wow thanks for all the info guys. Looks like I've got a good chunk of research to do here. Maybe I'll pick up some sort of an "Investing for Dummies" type book.

You've already taken a first good step. Don't believe everything people tell you, or base your actions upon such information. Base it on what you've researched but more importantly what you think. In terms of where you think our economy is heading, and what is feasible for you. Advice is one thing, but being a tool to some banker is a whole 'nother thing.

I am a dolphin, do you want me on your body?

If you're thinking of buying a book, I can't help but make the following suggestion: take a look at "The Intelligent Investor" by Benjamin Graham. It's more than 50 years old, though there are newer editions, obviously, but still quite nice. Though if you're looking for some sort of "Get rich quick without thinking" kind of book, that doesn't work, then look somewhere else.

I was speaking idiomatically.

One of the best recommendations out there is Burton Malkiel's A Random Walk on Wall Street. The reading is pretty light and very accessible and you should get a lot out of it.

What kind of toxic man-thing is happening now?