Anyone who has often found time to listen to and follow financial news has probably heard often of mutual funds and knows the stock market sector has risen steadily for almost 20 years. To cut it short, by most measures we can see that the stock market has made most people more money, doing it in a more reliable and comfortable manner, than any other investment you can think of or imagine for the past 75 years and as a result of this facts anyone who wishes to accumulate wealth must think of including or integrating stocks in his/her business investments so as to expect a larger inward flow of wealth through the profitability of his work and it’s all about these investment we are about to discuss in the subsequent sections.
Types of mutual funds
There exist thousands of choices today for investors when it comes to mutual funds, when it comes to investment understanding one’s own risk tolerance and financial by one’s self or with the help of a financial adviser is the first step in the journey of reaching long term financial goals.
Generally mutual funds all fit into three categories which are: bond funds, money market funds and stock funds also called equality funds. With each of this category having its own rewards, risks and features, in a more general manner the higher the potential return in the mutual fund, the higher the potential risk of loss.
Money market funds:
Money market funds are generally less volatile than the other types of mutual funds, following the law they can only invest in short-short and high quality investments as issued by the U.S government, local governments, state and U.S corporations.
No money market funds are guaranteed against loss, all money market funds do pay dividends that are often declared daily, monthly paid and generally reflecting just short term interest rates. Inflation risk can obviously be a concern for money market fund investors that the inflation rate might grow faster than investment’s return over time.
Being a potential alternative to keeping cash in one’s bank account, all investments in money market funds are not insured neither guaranteed by any government agency. As was observed in October 2006, money market funds improvements adopted by U.S securities together with exchange commission went into effect.
These improvements were intended to reduce potential risks to money market funds during all the periods of extreme market stress, under these improvements money market funds fall in to three general categories which are: governments, retail and institutional, often during periods of market disorder, as certain prompts are met and depending into which group they fall, money market funds could obviously be focused to redemption gates, floating net asset value and liquidity fee.
Bond funds/ Income funds:
All bond funds generally have greater money market funds, owing to the fact they classically pursue strategies designed at producing higher yields. Different from money market funds, there exist no laws to restrict bond form to high quality or else short term investments.
Due to the fact there exist so many different types of bonds these funds too can vary dramatically when it comes to risks and rewards, bond funds have a major risk which is ‘’credit risk’’ or the risk which other companies as well as other issuers fail to pay their debts, for credit quality of bonds contained in a fund would possess direct impacts on credit risks.
‘’Interest rate risk’’ is another risk which represents the market value of the bond going down when interest rates increase. In general funds that invest in a longer term bonds turn to have higher interest rates risk and also fluctuate dramatically in value in a higher way.
All interest earned on a bond fund’s collection is been passed to investors as dividends, which can be taken in cash or still can be reinvested, this component of a bond fund’s less expenses is referred to as its yield.
The two factors that affect bond fund’s yield are the quality of the bonds in the portfolio and the maturity of the bonds in the portfolio. Lower quality bonds in general together with those having longer maturities offer higher yields, but possess increase risks
Generally have higher risks and volatility than the bond funds and money market funds. Nevertheless over long terms, stocks have always performed historically than any type of investment.
For investments in stock funds, ‘’market risk’’ is the greatest potential risk for investors in stock funds. For many reasons stock prices can fluctuate dramatically, such as overall economy strength, demand for specific products and services. Types of stock funds include:
Growth funds: They focus more on stocks that may not obviously pay a regular dividend but having the necessary potential for a large growth.
Sector funds: There is a possibility of specialising in a particular industrial segment, which could be customer product stock or technology there by concentrating its investments only in one sector and involving in more risks than funds investing more broadly.
Equity income funds: Has to do with the investment of stocks that pay regular dividends.
Balanced funds: It has to do with the provision of both bond and stock as a combination to the investors holding in one mutual fund.
Index funds: It is always seeking to archive same returns as the particular market index.
Mutual funds investment plan
A mistake so many business men/women often make is taking the great risk of “investing” without taking time and effort to study and deeply understand mutual funds investment plans and its cunning principles. As a result they invest in it without understanding it. They are therefore unable to manage their portfolio wisely. As a result mutual funds investment planning comes in.
Always make sure you choose wisely and use appropriate caution, but for most of the folks, a good, boring and solid mutual fund is the famous path to getting riches thereby gathering as much wealth as they had often imagined and dreamed of. Here are the famous ten top reasons for investing in mutual funds following a good investment plan;
1) Selection: Life keeps on presenting unto us day after day lots of options but because we cannot dive into them all comes the necessity of making a choice known as selection, but we are not just to make a choice but to get the maximum of information possible on the different options presented to us thereby making a suitable selection which suits are needs and desires so it is with mutual funds for we are to make a suitable selection from thousands of funds existing to suit our needs, we can easily find magazines on “money”, most of the credit unions have good information which can be of good use to us together with local library which is a goldmine, not forgetting the wonderful services of the internet in terms of offering good information to us.
2) Start Small: As long as one dreams of carrying out a task or activity, unless he starts it he shall never do it, so one should better see on starting even if it is small on mutual funds than to keep on dreaming to start one day or waiting for much more money before starting, for most mutual funds around will permeate you start with 1,000 dollars and if you go on to set it up for just automatic deposits, some will go down to permeating you to start with just 50 dollars which is amount I have spent once at the spot in a restaurant!
3) Simplicity: Being a light task to carry out in all convenience methods, it’s just so simple as lying on your bed to get over the night and find yourself the next day without putting in great effort, you just have to consider depositing in a regular and stern way every month 10% of your salary, starting by paying yourself first, then pay the mortgage and finally pay everyone else around and that’s all.
4) Professional Management: In all domains of life a professional is just as important as the domain itself since he/she is like a catalyst who does not only increase the output time of the goods or services but also increases the output itself, so because I don’t have enough time to stay back and carry out the activities of researching, selecting and monitoring individual task stocks, I simply pay a professional a small fee and he does the work for me, keeping in mind a good fund manager will make me sufficiently rich as I have always wished.
5) Compound interest: Basing or depending on what index you pick, the US stock market for the past 10 years has gone up to an average of over 12% per year, and it’s almost been that high for the last 20 years, the market keeps on fluctuating but the wonderful beauty of this is that you careless for over 10, 20, 30 years the system works for all and will always!
6) Dollar-cost-averaging: Because the details are much more complicated, by investing each and every single month no matter the market is moving upward or downward it’s not your problem for you will certainly and finally have a great boost from the mathematics, so fear not for your “average-cost” will always be less than the “average-price” you paid thus redirecting money to your pockets.
7) Diversification: In different countries or just within a country broad-based fund invest in dozens of companies in different industries so as to maximise their profit level and chances for if one stock should go down, hopefully a dozen of others would go up thus keeping them at level at all times for there is an excellent and wonderful risk management and protection build in this funds.
8) Specialisation: As a matter of choice you can research and you’ll find funds that invest just in a small number of companies, if you can accept the additional risk you can invest in one particular industry of your choice, in one country or in different companies with particular management styles, this creates even an added advantage for greater profits if you choose the right company, but you should be aware of the great risk coming alongside with it.
9) Fund “Families”: Round the world most mutual funds are offered by management companies that sponsor different funds for a variety of objectives, they make it easy for you to move your money between funds with a phone call or through the internet.
10) Momentum: Your enthusiasm build once you get started and your desire to save highly increase thus a good way to success in making money.
Online mutual funds
Online mutual fund invest online is an internet based online investment service enabling one to buy, track and manage one’s mutual fund investments in a quick and convenient manner. Registration for online mutual funds is done online.
Good mutual funds
So many investors all-round the world turn to mutual funds to meet their long term financial goals a reason why it is necessary to know some tips on good mutual funds so as to better choose which to take on, so let’s discuss on some properties of good mutual funds;
Professional management: A good mutual funds portfolio is professionally managed by experienced money managers who research and select investments appropriate for the funds objectives as they also provide full time monitoring of the performance of those investments.
Varieties: Good mutual funds offer a wide range of options in terms of objectives and assets classes.
Diversification: Depending on each of their specific objectives, all mutual fund portfolios are diversified over so many different industries and companies. Mutual investment fund is therefore a great opportunity for investment for those who want the benefits of diversification but do not have the time to spend choosing individual investments.
As investing in mutual funds can boost one’s profits, it has risks and can cost the investor, so take time to read in detail and understand the prospectus before you engage yourself in to investing in the mutual fund.