Off Topic · OT: Mutual Funds (page 1)

I am looking to put some money aside instead of putting it into my bank account. I already have a cousin who is trying to sell me some mutual funds, but I don't know if I should commit to his company or look into some other company. I am thinking a lot of these mutual funds offered by various companies are all very similar and good, but not too sure. Does anyone know what's a good company with some good financial advisors? Also, any book recommendation or website regarding mutual funds will be appreciated.

What kind of fees are associated with these funds? Any front load? Whats the annual fee?

Posted by Andrew:

What kind of fees are associated with these funds? Any front load? Whats the annual fee?

There is a 5.75% (or 5%) front load fee, with 1% annual fee, but there is no cost if I want to switch my investments to other types of funds (blue chips, growth and income, bonds, etc). Also, there is no fee if I sell my mutual funds. I am looking at the Vanguard website, and I am just overwhelmed with the information, but I have people who have recommneded Vanguard as a place to start.

[Edited by - hank on 10-22-2008 10:20 PM]

I personally would not invest in funds with a front load fee. A 1% annual fee is also pretty high.

You could also think about ETFs, which are very similar to mutual funds but don't have the associated handling fees (they're not actively managed). Here's a primer: http://en.wikipedia.org/wiki/Exchange-tr...
I'm personally looking into putting some money into an ETF. Haven't said that, I wouldn't base too much of my financial planning on what a Knicks junkie says.

[Edited by - efw on 10-22-2008 10:47 PM]

I would not be looking at mutual funds right now. There are safer investments out there like bonds or CDs.

I am with freeskier, if you have to put a part of your savings into something right now, mutual funds is not where I wold go. Bonds and CDs are OK, .9999 grade gold is good, if you have to buy stocks go for index linked ETFs, but like mutual funds they are all in a downward spiral. When markets rebound there will be easy money in there.

It is NEVER easy to sell mutual funds when you want to, they can put freezes on all transaction to protect capital from flowing out, put limits on short term trading and a whole bunch of other things. ETF's also are not actively managed so have much lower fees.

Hank,

get a few referrals from people you know and trust that have been doing this a while. A quality person can really help you in the long run.

There are over 600 etf's now and they all do differnt things. Stay away from Index's.

Paying a front load and 1% seems high.

Your not even close to giving enough information to warrant anybody to offer you advice. The answer you seek really depends on how much money you are willing to commit, what is its purpose, your other investments, cash, bonds, etc.

In the generic sense, you buy when others are selling. You can do very well when fear takes over the street.

Posted by Hank:

Posted by Andrew:

What kind of fees are associated with these funds? Any front load? Whats the annual fee?

There is a 5.75% (or 5%) front load fee, with 1% annual fee, but there is no cost if I want to switch my investments to other types of funds (blue chips, growth and income, bonds, etc). Also, there is no fee if I sell my mutual funds. I am looking at the Vanguard website, and I am just overwhelmed with the information, but I have people who have recommneded Vanguard as a place to start.

Mutual funds - NO! especially a front-loaded fund- there are 1,000's of free, no-load mutual funds. Even if he is your cousin, I do a lot of reading first. Find out what is going on, otherwise its just a gamble.

Also, we are going into a major recession/depression. Wait a little while to get in. I'd recommend some CD's,not bonds right now. Stay away from banks, brokerage or mortgage houses, real estate, etc. The derivatives problem hasn't played out yet. Another reason to stay away from mutual funds - they may still be holding companies in these fields.

Don't put all of your eggs into one basket. Diversify!

Andrew, Nalod, Loweye, freeskier, ....all good advice IMHO.

Thanks all for your advice, I figure there are people in this forum who knows more about personal finance than I do, and can give me some pointers.

I am 23, and planning to invest in the long term. I am willing to put my money in stock-mutual funds and bond-mutual funds, and to have a diverse portfolio. Buying a few different type of mutual funds in itself is pretty diverse, since one type of fund invest in various companies within an industry, and buying multiple funds, means you are buying stocks across various industry. So let's say if I invest in a global fund, blue-chip fund, and small cap fund, then I will have investments in large companies outside the US, large stable public companies, and small size companies. Also, I can purchase a government bond fund to add more stability and diversity to my portfolio.

I have been reading around a bit, many renown investor gurus say I should invest 80% in stock-mutual funds, and 20% in bond-mutual funds (assuming I am young and will put my money in the for at least 10 years). As of now, I am trying to get an idea of what's a high fee to pay, and if the fee is justified, as in, will I get better service or performance if I pay a fee? I have read where I should buy mutual funds with the lowest amount of fee, so I can better take advantage of the effects of compounding interest. I am a bit surprised myself that my cousin's company didn't offer any funds where there are no annual fees.

I haven't heard about exchange-traded funds until today. From what I read from wikipedia, they are similar to index funds since they track and try to mimic their performance. Does anyone own some index funds or know how much they cost? So far, I have heard from a couple of sources, where 75% of mutual funds today have not outperfomed an index fund like S&P 500.

Just trying to figure out what to invest and how I should plan my investment strategy. I am looking for the highest (or significantly high compared to CD's) return after a 10 year period, and planning to use a large portion of that money to buy a house.

Thanks for your help, and anymore help you can provide me with making more informed decisions.

http://www.fool.com/mutualfunds/indexfun...

S&P index funds have garnered a lot of attention over the last couple of years for good reason. The Vanguard S&P 500 fund has outperformed over 90% of all domestic equity mutual funds over the past three and five years (and a much higher number if you include bond and international equity funds). But S&P index funds certainly aren't the only index funds -- and in fact may not even be the best.

Use Vanguard. It's actually a great time to invest right now, despite what people are saying. The market is low -- which means you have the most to gain when it goes up. People being foolish and pulling out early when they stand to benefit is part of the reason it's such a bargain right now. But yes, avoid front loaded and avoid any mutual funds with high fees. Most of Vanguards funds have or are among the lowest fees anywhere. That's my advice.

Vanguard ETF's yes, but funds no.

They are index funds. Go slow, your not trying to beat the market but beat the market volatility.

If you don't know how to do this, find someone that does. "price is only an issue in the absense of quality".

Fine a successful person who has 20 plus years in the market. No, find 3 people.

Im telling you what is important and you cannot get what you need off a blog or website.

This is not science, its theory and you need a discipline to get you thru it.

Low fees are not the end all if you don't understand Alpha.

Remember, wealthy people pay for people to manage their money. They pay to have their taxes done, Lawyers to draw contracts, etc.

Hire a professional to get a professional result. And if you don't have the coin to get one because your under the minimum find someone that will mentor you or perhaps call thier professional and they might make an exception for someone they care about.

If you want to emulate wealth then don't seek out the low cost provider. There are reasons for that.

Posted by Nalod:

Vanguard ETF's yes, but funds no.

They are index funds. Go slow, your not trying to beat the market but beat the market volatility.

If you don't know how to do this, find someone that does. "price is only an issue in the absense of quality".

Fine a successful person who has 20 plus years in the market. No, find 3 people.

Im telling you what is important and you cannot get what you need off a blog or website.

This is not science, its theory and you need a discipline to get you thru it.

Low fees are not the end all if you don't understand Alpha.

Remember, wealthy people pay for people to manage their money. They pay to have their taxes done, Lawyers to draw contracts, etc.

Hire a professional to get a professional result. And if you don't have the coin to get one because your under the minimum find someone that will mentor you or perhaps call thier professional and they might make an exception for someone they care about.

If you want to emulate wealth then don't seek out the low cost provider. There are reasons for that.

I am not in any hurry to accumulate vast amount of money in a short amount of time, but I am looking for some directions on where I can put money instead of putting them in the bank or buying CD's. I have read Jane Bryant Quinn's book, "Making the Most of your Money," and will plan to re-read the book in greater depth. Also, I am planning to pick up one of those Dummies books for mutual funds and personal finance. I will look more into ETF.

Thanks for your help, got me to think about asking my tax accountant if he got any good advice.

Posted by Nalod:

Vanguard ETF's yes, but funds no.

They are index funds. Go slow, your not trying to beat the market but beat the market volatility.

If you don't know how to do this, find someone that does. "price is only an issue in the absense of quality".

Fine a successful person who has 20 plus years in the market. No, find 3 people.

Im telling you what is important and you cannot get what you need off a blog or website.

This is not science, its theory and you need a discipline to get you thru it.

Low fees are not the end all if you don't understand Alpha.

Remember, wealthy people pay for people to manage their money. They pay to have their taxes done, Lawyers to draw contracts, etc.

Hire a professional to get a professional result. And if you don't have the coin to get one because your under the minimum find someone that will mentor you or perhaps call thier professional and they might make an exception for someone they care about.

If you want to emulate wealth then don't seek out the low cost provider. There are reasons for that.

I respectfully disagree. If you can keep your money in for a good amount of time (5 - 10 years), then mutual funds are generally the way to go. People like to think they can play the market, but most people significantly underperform the market. Statistics have shown that the lower your cost, the more you can bring home. People who advocate differently generally have a vested interest in getting people to pay for their services.

Hello again,

There are many people who talk about diversification without actually understanding the basis. Yes generally speaking the idea is to get stocks across a broad spectrum of industries, sectors, countries etc. But a when you try to do this through mutual funds the easiest way is to go index-linked. You can buy all the large cap, global and small cap you want but the "index" holds everything that you need. You can by a single index fund and you will be as diversified as you can get within the spectrum of US funds. Then if you want you can buy index funds from other countries as well like Brazil, china, Russia etc.

Now there is plenty of data that over the long run index linked funds actually outperforms about 75 -80% of all actively managed funds. I dont know about you but I dont have the time or energy to go looking for the other 25% and even if you find them they will probably have high fees, high minimums etc.

I also want to debunk the 80% stock 20% bond theory. This is generally good advice but people take it so literally that it often defeats the purpose. What this means or should mean is that the younger you are the more risk you should be able to take. But the goal is to find something that provides "returns" that justify the risk. Remember that with mutual funds you dont see the return data adjusted for all fees and transaction costs that would easily shave an additional 1-2 percent of those numbers. One of the first things you should try to do is to calculate your own Return on investment based on the money you are contributing NET OF ALL FEES,TAXES AND TRANSACTION COSTS only then do you get a true picture of what is going on.

Lastly here are some ETF examples:

Vanguard Index Linked: VTI
Brazil Index Linked: EWZ
China Index Linked: FXI
Gold : GLD (I would advise against this at this time, my take is you are better of with buying the hard asset instead of the paper ETF)

BTW I am not a big fan of Dollar Cost Averaging, just my personal opinion. But it does work reasonably well for the uninitiated.

Posted by Solace:

Posted by Nalod:

Vanguard ETF's yes, but funds no.

They are index funds. Go slow, your not trying to beat the market but beat the market volatility.

If you don't know how to do this, find someone that does. "price is only an issue in the absense of quality".

Fine a successful person who has 20 plus years in the market. No, find 3 people.

Im telling you what is important and you cannot get what you need off a blog or website.

This is not science, its theory and you need a discipline to get you thru it.

Low fees are not the end all if you don't understand Alpha.

Remember, wealthy people pay for people to manage their money. They pay to have their taxes done, Lawyers to draw contracts, etc.

Hire a professional to get a professional result. And if you don't have the coin to get one because your under the minimum find someone that will mentor you or perhaps call thier professional and they might make an exception for someone they care about.

If you want to emulate wealth then don't seek out the low cost provider. There are reasons for that.

I respectfully disagree. If you can keep your money in for a good amount of time (5 - 10 years), then mutual funds are generally the way to go. People like to think they can play the market, but most people significantly underperform the market. Statistics have shown that the lower your cost, the more you can bring home. People who advocate differently generally have a vested interest in getting people to pay for their services.

There is a very strong correlation between performance of funds and the actual performance shareholders experience. Why? No load investors tend to stay in shorter than funds bought thru advisors.

Also, working with a professional will help you asset your tolerance for pain and help you set parameters. Remember, books and magazines prefer you keep reading their stuff and are not accountable. A paid professional is accountable.

Why does firms like Morgan, Merrill and Smith Barney have avg account relationships that average about 500k per, but e-trade about 10k? Schwab is about 50k.

People with more money don't pay the same rates as small investors. Mutual funds are communal and everyone pays the same rate, so the more you have the more you pay.

Its not inherently evil for someone to get paid to do a good job. Everyday we employ people to work on our cars, houses, bodies, etc. All things we can do ourselves.

The "do it yourself" investment business positions itself (marketing) that you can do it yourself. Its way more complicated.

Like I said, beating the market is not always the best thing for some people. So a blanket statement that your paying someone to underperform is not entirely accurate.

Its relative to the risk you take.

Way too much to discuss in this forum.

One of my benchmarks is 60% downside and 80% upside participation in the market.

Guess what, I beat the market anyway.

You win by not losing.

Most look at "Beating the market" on the upside. If you can't, then you buy an index. ANd indexs drop more than most people can stomach, so they sell.

If you sell, your out. Since timing does not work, then the masses underperform. Why? They are emotional.

The key is alpha. Keep you downs at a minimum so you can stay in. If you can stay in, you can buy on dips. The dips are not your reality, but an opportunity.

If you feel safe, you can see things with clarity. If your worried about your existance, then one should have proper liquidity.

and if you don't have it, then you better be less volitile than the markets to begin with. Thats the key, how you go into this is how you come out.

Are the indexs acceptable this year? month? Not in my book.

Hank, you learn by doing, not just reading.

Thats why I keep saying, find a few people that are really doing it.

There is no one way to do this!!!!!! Thats why you can read every day, every book and every mag and not have a clue. Find a dicipline and don't deviate. Be methodical. This is the hard part.

and if you can't, then find someone that can.

If you were in trouble you'd find the best lawyer, if you had tax problems you'd find the best acocuntant. Why skimp on you money? Why find the lowest cost provider?

Im not saying be stupid and get with a broker that is not your advocate first.

Fine a successful one and hope he can take you on. Most won't if your small. Thats Why I said find someone that can take you under his/her wing.

This is money, don't be stupid.

Posted by Nalod:

Posted by Solace:

Posted by Nalod:

Vanguard ETF's yes, but funds no.

They are index funds. Go slow, your not trying to beat the market but beat the market volatility.

If you don't know how to do this, find someone that does. "price is only an issue in the absense of quality".

Fine a successful person who has 20 plus years in the market. No, find 3 people.

Im telling you what is important and you cannot get what you need off a blog or website.

This is not science, its theory and you need a discipline to get you thru it.

Low fees are not the end all if you don't understand Alpha.

Remember, wealthy people pay for people to manage their money. They pay to have their taxes done, Lawyers to draw contracts, etc.

Hire a professional to get a professional result. And if you don't have the coin to get one because your under the minimum find someone that will mentor you or perhaps call thier professional and they might make an exception for someone they care about.

If you want to emulate wealth then don't seek out the low cost provider. There are reasons for that.

I respectfully disagree. If you can keep your money in for a good amount of time (5 - 10 years), then mutual funds are generally the way to go. People like to think they can play the market, but most people significantly underperform the market. Statistics have shown that the lower your cost, the more you can bring home. People who advocate differently generally have a vested interest in getting people to pay for their services.

There is a very strong correlation between performance of funds and the actual performance shareholders experience. Why? No load investors tend to stay in shorter than funds bought thru advisors.

Also, working with a professional will help you asset your tolerance for pain and help you set parameters. Remember, books and magazines prefer you keep reading their stuff and are not accountable. A paid professional is accountable.

Why does firms like Morgan, Merrill and Smith Barney have avg account relationships that average about 500k per, but e-trade about 10k? Schwab is about 50k.

People with more money don't pay the same rates as small investors. Mutual funds are communal and everyone pays the same rate, so the more you have the more you pay.

Its not inherently evil for someone to get paid to do a good job. Everyday we employ people to work on our cars, houses, bodies, etc. All things we can do ourselves.

The "do it yourself" investment business positions itself (marketing) that you can do it yourself. Its way more complicated.

Like I said, beating the market is not always the best thing for some people. So a blanket statement that your paying someone to underperform is not entirely accurate.

Its relative to the risk you take.

Way too much to discuss in this forum.

One of my benchmarks is 60% downside and 80% upside participation in the market.

Guess what, I beat the market anyway.

You win by not losing.

Most look at "Beating the market" on the upside. If you can't, then you buy an index. ANd indexs drop more than most people can stomach, so they sell.

If you sell, your out. Since timing does not work, then the masses underperform. Why? They are emotional.

The key is alpha. Keep you downs at a minimum so you can stay in. If you can stay in, you can buy on dips. The dips are not your reality, but an opportunity.

If you feel safe, you can see things with clarity. If your worried about your existance, then one should have proper liquidity.

and if you don't have it, then you better be less volitile than the markets to begin with. Thats the key, how you go into this is how you come out.

Are the indexs acceptable this year? month? Not in my book.

Hank, you learn by doing, not just reading.

Thats why I keep saying, find a few people that are really doing it.

There is no one way to do this!!!!!! Thats why you can read every day, every book and every mag and not have a clue. Find a dicipline and don't deviate. Be methodical. This is the hard part.

and if you can't, then find someone that can.

If you were in trouble you'd find the best lawyer, if you had tax problems you'd find the best acocuntant. Why skimp on you money? Why find the lowest cost provider?

Im not saying be stupid and get with a broker that is not your advocate first.

Fine a successful one and hope he can take you on. Most won't if your small. Thats Why I said find someone that can take you under his/her wing.

This is money, don't be stupid.

You have to first know the basic before you can go and start investing. It will be stupid just to put money into something I don’t have a clue on how it works, and expect to make a return. They are a lot of people who are more knowledgeable and have training in this area, and still end up losing money. So, I am going to be wise with my money by doing more research and asking around and being selective of advices I receive.

So far your advice has been to tell me go spend money on those high end professionals, which is good if I have a fat bank account. But since I don’t, I am just going to do what I can with what money I have and whatever books/periodicals I can get my hands on. Some of these books/periodicals that you criticize are actually written by those highly compensated financial advisors you keep on recommending. These writers have impressive track records, and choose to write for a business magazine/books to make some extra money on the side and increase their visibility, which again helps them make more money. This means they also have an incentive to sell good information, or some other business writer will take their position.

Thanks for your time and advice though, and when I have some more money I will look more into these high-end advisors. In the meantime, I am just going to start with the basics, and just pick up books/periodicals, so I can better take care of my money instead of just completely trusting my advisors’ judgment.

Posted by loweyecue:

Hello again,

There are many people who talk about diversification without actually understanding the basis. Yes generally speaking the idea is to get stocks across a broad spectrum of industries, sectors, countries etc. But a when you try to do this through mutual funds the easiest way is to go index-linked. You can buy all the large cap, global and small cap you want but the "index" holds everything that you need. You can by a single index fund and you will be as diversified as you can get within the spectrum of US funds. Then if you want you can buy index funds from other countries as well like Brazil, china, Russia etc.

Now there is plenty of data that over the long run index linked funds actually outperforms about 75 -80% of all actively managed funds. I dont know about you but I dont have the time or energy to go looking for the other 25% and even if you find them they will probably have high fees, high minimums etc.

I also want to debunk the 80% stock 20% bond theory. This is generally good advice but people take it so literally that it often defeats the purpose. What this means or should mean is that the younger you are the more risk you should be able to take. But the goal is to find something that provides "returns" that justify the risk. Remember that with mutual funds you dont see the return data adjusted for all fees and transaction costs that would easily shave an additional 1-2 percent of those numbers. One of the first things you should try to do is to calculate your own Return on investment based on the money you are contributing NET OF ALL FEES,TAXES AND TRANSACTION COSTS only then do you get a true picture of what is going on.

Lastly here are some ETF examples:

Vanguard Index Linked: VTI
Brazil Index Linked: EWZ
China Index Linked: FXI
Gold : GLD (I would advise against this at this time, my take is you are better of with buying the hard asset instead of the paper ETF)

You cleared up a lot of confusing ideas I had. Thanks a lot. Do you have any good book/magazines/websites recommendation for a newbie investor? Ha, I never would mistake you for a loweyecue person (the whole time I thought the name was a food dish, something like Barbecue).

That last post by Nalod has some good general advice, you do learn by doing. With all the information available it is amazing to note that only a small percentage of traders use fundamental analysis as the SOLE basis for trading, so called "gut feel" or intuition still plays a large part. But you absolutely have to do a lot of reading and research and it takes a good deal of time and can be confusing. So for someone not schooled in the complexity of finance this can be adaunting task. So Nalod's other advice about using professionals is not a bad one.

There are brokergae firms where you can "qualify" for some degree of "advice" when you have certain minimum balance in investment accounts with them and this can be as low as 50K. Not saying that everyone has 50K to invest just stating what may be available in terms of advisory services.

The third thing from Nalod's post that I agree with is that right now the indexes are close to 20 year lows or something such. And that is not the direction you want see things going when you are invested in index linked MFs or ETFs. But the case for diversication is made easy by this, if you look at most Mutual funds that focus on a sector most of them are down a lot more than the indexes are. The purpose of diversification is to minimize risk (volatility) but it works both ways, it also means the indexes dont go up as much when the trend is upwards.

If you want to read about investing basics there is some good information out there, try Fidelity.Com --> Research, Bloomberg etc. Yahoo finance and Google finance are also both good for watching day to day market trends. Use Investopedia.com if you need to understand some of the jargon that's used in these articles.

Investing is really quite simple. I don't know why everyone is making it sound so complicated. Here's the scoop: First, as Nalod said, either hire a professional adviser, or educate yourself to make good investment decisions. Then, invest regularly over a long period of time. For example, if you could invest $5,000 per year for 30 years, you'd have invested $150,000 dollars. However (here's the wonderful part) $150,000 is not the final value of your account. That final value is....

$4.95. That's right. Four whole dollars and ninety five whole cents! When you collect this princely sum, you will be glad you invested that money instead of wasting it.

Hopefully our politicians will get their act together and allow us to start investing our Social Security money in the stock market too.