More Tips About Investing

A mutual funds is a collection of stocks and bonds that are combined into a pool, which are purchased and sold. By pooling these investments you are risk managing the losses that some stocks or bonds may have with gains made by others. This is basically protecting you from having all your eggs in one basket, which is a high risk strategy.

Mutual fund managers have the responsibility to manage a mutual fund. When you invest into these funds you are buying a part of the stocks and or bonds that an investment has been made in. Due to the size of these funds, your investment will only form a small percentage of the overall size of the investment. The decision on what stocks or bonds that the mutual fund buys and sells is determined by the manager. These managers charge a commission and sales fees which you will have to pay for. The structure of these mutual funds often falls within four categories. When you pay a fee at the beginning, this is called a front up.

A back end is when you pay when the shares or bonds are sold. When there is a payment of a fee on a regular cycle, like the annual fee, it is usually based on a fixed percentage of the fund’s net assets. The final type of fee is the best one of all, it is the payment of no fee at all and is commonly called the no load. Obviously this is a good one to shop around for and to select if the fund also has a good track record of providing good returns. There is a choice of the types of funds to invest in. There are the standard stock funds that are issued by companies. The bonds funds are just that, the purchasing of issued bonds. Sector funds are target at specific parts of the economy, such as financial, industrials, mining and the like. International and global funds are as the name indicates, investments made outside of the United States. Balanced funds enable the selection of stocks and bonds, which is a more risk adverse approach. Index funds are aligned to stocks of a particular type of stock indexes.

You probably heard of these reported quite regularly as the Dow Jones Industrial average, or another common one is the Standards and Poor’s 500. These are a collection of stocks that make up these stock indexes. Your investment in index funds is only with the stocks that are included in these fund indexes.

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Investing in green and socially conscious mutual funds is a responsible thing to do for many people and it feels good too for obvious reasons. It has increased in popularity in the last few years and many people feel much more comfortable investing in and aiding socially conscious companies than in investing in companies that produce tobacco products, pollute the environment, and engage in other questionable activities. But how can you tell is a fund is responsible?

Read the funds prospectus carefully. Just because they claim to be green or socially conscious doesn’t mean they fit your definition of those terms. How do they screen companies for inclusion in the fund? Are certain industries of practices actively avoided? Or maybe it’s based on preferences. Some funds prefer companies with great green or socially responsible records when all things are equal but may or may not specifically exclude any behavior or practices. Some funds may also invest in companies where they might be able to influence corporate behavior for the better. And of course some may have mixture of the above tenants.

Your money can have some positive effect if invested wisely. Also of course look at the fund results both short and more importantly longterm; you want it to have a positive result on your bottom line as well! Previously, these types of funds were seen as having below market or below average performance, but that is no longer the case. Invest wisely and carefully, and you can help social causes, the environment, and also yourself.

Harry Baldwin writes on many topics. His latest tips are at Rubber Stair Treads and Outdoor Stair Treads. Be safe and responsible!

The original, stock-based exchange traded funds (ETFs) were a breakthrough financial product. They make great substitutes for traditional mutual funds because they trade all day like stocks, have a low cost, and are much more tax efficient.

Today, however, there are many new, exotic ETFs coming out. For the most part, these products should be avoided:

1. Leveraged ETFs – Normal funds that replicate an index or its reverse are fine products. The problem comes in when people buy the new wave of leveraged ones which duplicate 2 or 3 times the underlying index (or its reverse). They don’t understand that these products are meant for day trading, and thus replicate 2 or 3 times the daily movement of the index. This makes them unsuitable for long term, buy and hold investing.

For example, if a certain index is down 10% for the year, a fund that replicates 2 times the index might be down 24% – not down 20%. Perhaps even more confusing, an ETF that replicates 2 times the reverse (which might be expected to return +20%) might be down 16% for the year. Again, this is because the funds are designed to double the daily volatility.

2. Lack of Liquidity – Some of the new ETFs suffer from too narrow a focus. This makes them vulnerable to lack of liquidity and stray from their intended purpose. For example, the United States Oil Fund tracks oil futures, but under performs the market due to slippage, since it is a very thin market. The First Trust Global Wind Energy ETF is supposed to invest only in clean energy. However, since there are only a small number of wind energy companies, the fund has to invest in companies like BP.

3. Tax inefficiency – Some exchange traded funds that invest in metals – such as the SPDR Gold Shares and iShares Silver Trust – are structured as grantor trusts. This results in investors paying taxes at ordinary income levels – rather than at capital gains rates.

Over the years, Praveen Puri, a trading and financial veteran, developed a passion for simplicity, minimalism, and Eastern philosophy. He developed a pure Zen trading system. It uses no news reports, indicators, charts, or parameters to distract you from Now. They are nothing but crutches that keep you hobbling around, instead of surfing in flow with the market.