How to Find Value in No Load Mutual Fund Investing

Comments (20)


How to Find Value in No Load Mutual Fund Investing

By: Ulli G. Niemann

What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars?

Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees and no 12b1 charges?

If you are like most people, you know these things in and out. You've spent hours evaluating them, and your chosen mutual funds cost little to purchase and maintain. But they still don't perform to your hopes and expectations.

So, why is this happening? Because this kind of investing focuses on cost as opposed to value.

Investors with this philosophy have usually interviewed numerous advisors. But instead of trying to find someone suitable with a sensible approach, they only want to know who has the lowest fees. That's like going to the cheapest auto repair shop and getting the best price, but your car still doesn't run well.

Then there are the investors who call or email me wanting a recommendation on a no load mutual fund. They want one with no 12b1 charge, but they completely ignore the issue of how the fund might perform.

Both these kinds of investors spend their time trying to save pennies and in the process they are losing dollars. Instead of falling into the penny wise, dollar foolish trap, here are some ideas that will assist you in evaluating the end profit rather than just the short term saving.

1.) Shift your focus from penny pinching to looking at the big picture: What can a mutual fund or an advisor do for you, not how much does it cost? Why? If you buy a given no load mutual fund at the right time and it gains a tidy 15% for you over a 6 week period, would you really care about the costs? If a mutual fund-or an advisor for that matter-can give you superior performance and an increase of several percentage points over your bargain price pick wouldn't you pay an extra 0.25%?

2.) Consider finding a fee-based investment advisor who uses a facts-based methodology and has a track record indicating those kinds of returns. For example, in my own practice I used a trend tracking approach to get my clients into the market on April 29, 2003.) Plus, our research and homework led us to recommending funds that gained anywhere from 11.) 50% to 22.) 00% over the following 6 week period. How did you do during that time? Do you think any of my clients care whether one of these funds has a small 12b 1 charge? Or whether they have the lowest expense ratios in the industry? I know they don't. (If you are looking for an advisor, please see my article "How to find an Investment Advisor" at http://www.successful-investment.com/articles18.) htm)

The bottom line is to look at costs as balanced by performance and that's where you find value. Then seek true value not simple savings, enjoy healthy dollar-level returns and don't sweat the pennies.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: http://www.successful-investment.com


ulli@successful-investment.com

Comments

Laeticia 24.09.2007. 13:50

Where should I go to invest in equity index or no-load mutual funds? I am mad that I spent so much $ on Class A mutual funds and want to dump my brokerage firm and start investing the smart way. I have read that equity index funds and no-load mutual funds are the way to go, but I have no idea where to go or which funds to buy. I just want to put my money away in aggressive investments and let the money sit there and reinvest the dividends. I don't want to buy and sell stocks - I would rather put it in diversified funds and just let it grow. I have 30 years to retirement so I want to be as aggressive as possible. Seems like if I ask a financial "expert," they just want to sell you their own products. Is anyone out there a financial expert who can give me objective advice??? HELP! I have a couple of IRAs and about $200K in mutual funds right now. Thank you!!!

Laeticia

Admin 24.09.2007. 13:50

You should invest in a diversified mix of stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks as individual stocks are too risky. Most folks have a dificult time buying a properly balanced portfoilio of stocks on their own. They will misbalance their portfolio by buying all small stocks or all growth stocks, or some other misbalanced assortment of stocks. Unless you know what you are doing, it is best to buy mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money aggressively in stock funds, and part conservatively in money market funds and bond funds. Vanguard.com has an on-line questionnaire which will give you an idea of how to do "Asset Allocation," determining how much to put in each type of fund.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea. If you have children, you may want to consider a 529 plan or other college savings plan that grows tax free.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. and ~20-30% in a foreign stock index fund. However, there are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion.

If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information.
Sources:

http://www.vanguard.com/VGApp/hnw/planningeducation
http://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
http://www.diehards.org/readsites.htm
http://finance.yahoo.com/education/begin_investing
http://finance.yahoo.com/funds/basics

Asset Allocation Calculators
(Determining how much to put in stocks and how much into bonds and money markets is a personal decision depending on your financial status. These Asset Allocation questionaires give you a rough idea how to do this. I like Vanguard best, but try some of the other sites as well.)
https://flagship.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education
https://ais2.tiaa-cref.org/cgi-bin/WebObjects.exe/DTAssetAlcEval
http://www.ifa.com/SurveyNET/index.aspx

Web forum: http://www.diehards.org/
(Many investment web forums are overrun by scam artists. This one seems the most legitimate site.)


529 plans: http://www.savingforcollege.com

Admin

N 12.10.2011. 14:36

How to invest in a mutual fund? I would like to invest in a mutual fund but I don't know where to start.

N

Admin 12.10.2011. 14:36

If you don?t want to spend a lot of time with your investments, Mutual funds can be the best solution.
A Mutual fund will provide you with a good diversification and your money will be professionally managed.
Unfortunately, like any investments, you must do your homework before investing. Basing your investment only on past performance will be foolish.

How a mutual fund works?

Open ended funds.
The majority of mutual funds are open funds. Open funds continuously issue shares.

Closed end funds.
A closed end fund has a limited amount of shares.
An investor can invest in a closed end fund by buying shares on a secondary market.

Where to find mutual funds?
You can find mutual funds on MorningStar?s website.

How to buy a mutual fund?
With a broker, online broker, your bank, directly submitting to the fund.

Types of mutual funds:

Money Market funds.
Money market funds invest in short term paper like treasury bills (short term bonds, less than one year maturity).
They are very safe but provide a modest performance. The performance for money market funds is correlated with short-term interests.

Bond funds.
Bond/fixed income funds invest in fixed income securities like bonds, Mortgage backed securities and asset backed securities.

Equity funds.
Equity funds invest principally in stocks. The performance is generated by capital appreciation and dividends.
Equity funds can be divided in the following categories:
Value fund, growth fund, sector fund, fund of funds.

Balanced funds.
Stocks and bonds compose balanced funds. A balanced fund can provide you a good diversification by buying only one fund.

International funds.
They have the advantage of investing worldwide. The principal drawback is that the fund manager must deal with various exchange rates.

Indexed funds.
If you believe that the fund managers are not able to beat the market.
You can still invest in an index fund. The management fees are usually lower because the fund only follows an index.


How to choose a Mutual fund?

To elect a mutual fund you should look for the following items:

Prospectus: an important document.
In the prospectus, you will find the most important information on the fund.

Fees
Front load and back load. Avoid funds with front load and back load.
Historically these fees were supposed to cover the marketing expenses.
They can be very high up to 5% and sometimes more.

Management fees and administration fees.
Management fees are the fees you pay to the fund manager each year, they usually rank from 0.5% to 2%. Naturally, if you invest in a mutual fund, watch for the lower management fees. For example, investing in an index fund is interesting because the management fees are usually lower (around 0.5%)
Administration fees are fixed fees of the fund (for custody and other administration expenses), you should pay again each year. Usually they are around 0.10 %.
You can easily control the total amount of fees by looking at the expense ratio.

Fund size.
With a too small mutual fund, the fixed fees will represent a large part of the performance. If the fund suffers many redemptions it will be force to close.
If the fund is too big, the fund manager will have some difficulties to put in place his strategy. For example, a lot of funds are closed to new investors. Like this the manager can pursue his strategy in a better environment.

Age.
The fund should have survived during various economics cycles.

Fund manager.
When investing with a mutual fund, you should check the fund manager credentials. Look for an experienced fund manager.
Along with your investment, keep an eye if any turnover regarding the fund management team.

Cash position.
A mutual fund should always be fully invested otherwise you won?t get any performance but the fund manager will still get paid.
To verify this point, you can refer to the prospectus.

Portfolio turnover.
Avoid funds with a high turnover ratio (churning). The portfolios with a high turnover provide less performance. As these funds buy and sell a lot of securities, the performance is generally less than stable portfolios.

Net asset value (NAV).
The net asset value is calculated by summing the portfolio assets less any liabilities (like the fees).
The net asset value of a mutual fund is calculated periodically (every days, every months for example).
Before buying a mutual fund, it is important to check if the price you pay is close to the NAV per share (the real value of the fund).

Taxes
Avoid buying fund before the distribution date.
Avoid churning funds.
It is better to invest in a tax deferred or tax exempt account like IRA or your 401(k).

Admin

Vishram 10.01.2011. 09:46

How is calculation for Mutual Fund returns is made ? I tried to find out how is calculation of Mutual Funds (SIP) returns is made but by all different ways at my level failed to match with the past performance % given in booklet. Can anyone tell me how following calculation is made in ICICI Prudential Tax Plan? 1 year SIP,Rs 1000 invested every month, total amount invested = Rs 12000/- , Scheme Market value Rs13220.33 How this % can become 22.36 ?

Vishram

Admin 10.01.2011. 09:46

You have to look at it as being 12 separate investments, assuming that you invest at the beginning of the month, one investment for 12 months, one for 11 months, one for ten months etc. which all add up to the total return. So what you have is:

Let R be ( 1 + ((annual nominal interest rate)/12)/100 )
Let X be the monthly investment (1,000)

therefore:

13,220.33 = X * R^12 + X * R^11 + X * R^10 ... + X * R

In Junior high, they teach you the equation for the summation of a geometric sequence which would sum up the terms A * R^k for k from 0 to n. Of course, we want from 1 to n so you have to subtract A*R^0 from the equation but with that equation, we have:

13,220.33 = X * ( 1 - R^13 ) / ( 1 - R ) - X
.:
13,220.33 = X * ( (1 - R^13) / ( 1 - R ) - 1 )

This becomes a roots of a polynomial problem on a 13th order polynomial meaning that there are 13 answers of which only one is correct. It's easier to solve this by trial and error.

Mind you this says that at 22.36% nominal per year, the total return for the year should be 13,557.48 so the nominal per annum interest rate given by this equation is less than that quoted.

There are several possibilities for the results to be different, one is rounding error, one is that they may be talking about investing at the end of the month in which case it's just a summation for k from 0 o 11 instead of from 1 to 12, and they could be quoting effective annual interest instead of nominal annual interest ( monthly R would be e^(ln(1+(quoted rate)/100)/12) if the quoted rate is the effective rate instead of 1+( (quoted rate)/12 )/100 if the quoted rate is the nominal rate), management fees or load of the fund, and most likely it's a combination of these factors. However the over riding reason is that it's just marketing so they are going to exaggerate the percentage quoted. This is evidenced in that only the case where you assume the investment is at the end of the month and the quoted per annum interest rates were he effective rates would result in a value greater than or equal to 22.36%, i.e.: 1,000 invested at the end of the month for one year at 22.36% per annum effective results in 13,185.02 which makes it quite likely that they used the equations that puts gave them the highest interest rate to quote.

Of course, it's not unusual for marketing material for mutual funds to present wrong and misleading figures. The most common misrepresentation is that of an average per annum return, if a fund returned -60% one year, followed by 110% the second year and then 30% in the third, it may be quoted as having an average return of 26.7% per year over those 3 years when in fact it had averaged 2.98% per year over those 3 years. This is because most people think of average as just being the three numbers added up and divided by three but that would only be the case if your investment started out with the same amount at the beginning of each year but your investment will start out with what ever it ended the previous year with so it's actually the geometric mean not the arithmetic average that will give you your average returns i.e.: e^(ln((1-0.6)*(1+1.10)*(1+0.30))/3) = 1.0298 hence 2.98%, this can also be expressed as ( (1-0.6)*(1+1.10)*(1+0.30) )^(1/3) or the cube root of the product of the three terms. Note that the geometric mean applies to lump sum investment at the beginning of the multi term investment, it's a little more complicated to calculate the effective average of a SIP in that not all of the investment was invested for all three terms, in a SIP case the effective average is more akin to an exponential moving average and the three years performance noted above would equate to a 29.25% per annum average but only if the investment started at the beginning of those three years hence one third of the investment suffered the crippling losses of that first year. Had the order of the returns been reversed, i.e.: 40% the first year, 110% the second and -60% the third, the geometric mean applicable to a lump sum investment would still be 2.98% per annum average but the SIP per annum average would be -12.07%.

You also have to realized that the figures quoted in the marketing material is always about historical returns, they actually have no idea as to what the returns will be in the future and always have a disclaimer to that effect.

Admin

atg28 26.03.2007. 00:40

Is a mutual fund the best way to save for a first home? I'm looking in 3-4 years to purchase my first home. I have been currently saving for it, but if there was a decent way to marginally increase the overall downpayment that would help in the long run. I could buy into a blended mutual fund which has decent returns.

Is this an okay way to do it without being hit with penalties or are CD's a better way to accumulate this money?

atg28

Admin 26.03.2007. 00:40

It really depends on which funds you're actually investing in, but I'd think most financial planners would advise against it.

You'd have to start first of all with the issue of cost. Are you buying a mutual fund that has an upfront sales load? Some can be as high as 5.75%. This means you lose 5.75% of your principal balance, the minute you buy it. Just to break even in 12 months, this fund would have to gain in value by 5.937% (since you're only actually investing $9425 of every $10,000 paid).

On top of that, even with a no-load mutual fund (the only kind you should consider), there's annual maintenance and 12-b fees. These can run from 0.80 - 2% or possibly higher. So you need to add that on top of your minimum gain just to break even after 12 months. It gets a little better on the money invested over time, because you only pay an upfront load once, but the annual maintenance costs remain.

You wouldn't be investing into a tax-advantaged account, since those are more difficult to withdraw from, no point if you know you will be in 3 years. You can actually have to cut a check for taxable gains from your mutual funds, even if the actual cash value of your investment has dropped. Yes, you read that right.

So. You basically have to earn 8% annually just to break even after the first 12 months. More like 10%, to cover taxes. Your safest bet is a no-load index fund, like a Vanguard/Fidelity S&P 500 mutual fund, or buying QQQ Nasdaq tracking stock. These could very well get you 10% annually. Over time, that's what it has done. But in 2-3 years, you could also lose 20% of your principal, without having enough time to let the market return and get your money back.

Much better to, as you suggested, buy some laddered CDs. Possibly even short-term Treasury bonds/T-bills? It's not hard to find FDIC-insured money market/savings/CD's out there that are paying 5-6% right now. Guaranteed return. Guaranteed to not lose principal. Guaranteed to be repaid by the government if the bank goes under somehow. 3-4 years time just isn't enough to want much exposure to loss of principal.

Maybe get a good savings account. Dump money in there for 3 months, then put that into a 3 month CD. Start over, then combine the balances into a new CD (better rates are common with bigger balances). Keep doing that, reupping the duration of your existing CD's to squeeze higher yields when possible. Watch it grow. Lather rinse repeat...

First step, identify a bank that is paying high yields. Bankrate has local searches you can do. Your local paper probably has a weekly listing of rates. Check the print ads too. Then go talk to a banker about what you want to do. Figure out roughly how much you'll put aside monthly, and you and your banker can figure out the best way to put that money to work, looking at what tiers you'll hit for getting higher yields, when to combine balances, when to buy a 3-month CD to have it mature when your others do. All that good stuff. If rates are rising, keep the money in shorter-term CDs. If rates are dropping, put it out as long as you can to protect your high yields...

Admin

James 03.10.2007. 06:40

What should i invest in mutual funds, ETF's, equity funds, etd? Im young 18 and looking to invest, I want to get a head start and learn now so I will have better knowledge when I get older and maybe a few more bucks from it, I really only want to invest about a thousand dollars I know its not much to invest but its all I can afford. What should I invest my money into considering my circumstances. There seems to be so many options, mutual funds, IRA, ETF's, euity funds, stocks, cd's, etd.

Please help me out. Any other tips and advice will be greatly apprecaited

Thanks!

James

Admin 03.10.2007. 06:40

You should invest in a diversified mix of stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks as individual stocks are too risky. Most folks have a dificult time buying a properly balanced portfoilio of stocks on their own. They will misbalance their portfolio by buying all small stocks or all growth stocks, or some other misbalanced assortment of stocks. Unless you know what you are doing, it is best to buy mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money aggressively in stock funds, and part conservatively in money market funds and bond funds. Vanguard.com has an on-line questionnaire which will give you an idea of how to do "Asset Allocation," determining how much to put in each type of fund.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. and ~20-30% in a foreign stock index fund. However, there are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion.


If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information. If you find it too confusing, contact a professional financial advisor. They will charge you significant commissions, however.

Sources:

http://www.vanguard.com/VGApp/hnw/planningeducation
http://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
http://www.diehards.org/readsites.htm
http://finance.yahoo.com/education/begin_investing
http://finance.yahoo.com/funds/basics

Asset Allocation Calculators
(Determining how much to put in stocks and how much into bonds and money markets is a personal decision depending on your financial status. These Asset Allocation questionaires give you a rough idea how to do this. I like Vanguard best, but try some of the other sites as well.)
https://flagship.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education
https://ais2.tiaa-cref.org/cgi-bin/WebObjects.exe/DTAssetAlcEval
http://www.ifa.com/SurveyNET/index.aspx

Web forum: http://www.diehards.org/
(Many investment web forums are overrun by scam artists. This one seems the most legitimate site.)

Admin

Aaron 05.05.2010. 16:26

What is a good investment fund to look into? I was wondering if anyone knew of funds that have been successful in the current economic climate? I am looking into hedge funds, managed futures funds, and mutual funds to possibly invest with.

The money I am looking to allocate to this would be about $20,000.

Bryan

Aaron

Admin 05.05.2010. 16:26

You do not have sufficient money to consider hedge funds and you probably should avoid a manage futures fund.

There are some very good mutual funds available. You should avoid placing the entire 20k into one fund though. That would be too risky.

Some of the best mutual funds available are managed by American Funds but they all have a front end load. Even so if you were thinking of investing for ten years, over that period of time they might likely outperform the vast majority of no load funds.


Here is a list of some of my favorites with different investment styles and strategies.

MCHFX invests in Chinese companies
PRWCX invests in Latin American companies
PENNX invests in value small cap companies
ARTQX invests in value mid cap companies
PRWCX invests in bonds and large cap stocks
GLD invests in gold

You can visit Morningstar.com and find out the risk and returns of thousands of mutual funds. It is free but you do have to create an account so they can send you junk mail promoting their for sale services.

Admin

Stephen B. 05.12.2009. 04:53

Whay do I want to invest in a Mutual Fund? I always hear about Mutual Funds and about investing in them. Being new to this I would like to know why.

Stephen B.

Admin 05.12.2009. 04:53

Benefits of investing in MFs:

# Professional investment management - One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment manager is certainly worth the fees you will pay.

# A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification.

# Low Cost - A mutual fund let's you participate in a diversified portfolio for as little as Rs.$ 100, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

# The return potential of medium to long term Mutual Funds multiplies manifold, resulting in greater profitability for investors in the long-term.

# Minimizing Costs : Compared to direct investment in the share market, making investments through Mutual Funds is a less expensive affair that helps minimize an investor?s overall cost of investment. Through Mutual Funds, the economy of scale tips in the investor?s favor as he will enjoy special benefits in terms of brokerage, custodial fees, etc.

# Benefit of Liquidity:
Investors can encash his investments in Mutual Funds, partially or wholly, at prevailing net asset value, at any point of time.For Closed ended schemes, investors can encash their investments at prevailing Nav,subject to exit load at specific intervals, if provided in the scheme.In certain schemes, where lock in period is mentioned, investor cannot redeem his investment until that period.

# Transparency
Mutual Funds are the most transparent form of investment. Investors will receive detailed information and timely updates about the nature of investments made, fund manager?s investment strategy behind the investments, the exact amount invested in each type of security, etc.

# Convenience
Mutual Funds facilitate easy and disciplined investment as well as ensure easy withdrawal of funds as per investor?s convenience.

# Choice of Investment
There are different types of Mutual Funds across varied sectors, and with due assistance from a financial expert, the investor can choose a scheme that aptly fits his requirements, and helps him achieve maximum profitability.

Admin

paleofilms 01.10.2007. 17:53

What are the best ways for a young adult to invest? I'm 21 years old with a B.A. in Mass Communications. I'm currently getting my M.B.A. and working part time. I figure theres no time like the present to start investing for my future...Things I've heard so far regarding smart investing: precious metals, stocks, roth ira, mutual funds.

As a young adult what are my best options to invest for a wealthy or atleast comfortable future?

paleofilms

Admin 01.10.2007. 17:53

You should invest in a diversified mix of stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks as individual stocks are too risky. Most folks have a dificult time buying a properly balanced portfoilio of stocks on their own. They will misbalance their portfolio by buying all small stocks or all growth stocks, or some other misbalanced assortment of stocks. Unless you know what you are doing, it is best to buy mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money aggressively in stock funds, and part conservatively in money market funds and bond funds. Vanguard.com has an on-line questionnaire which will give you an idea of how to do "Asset Allocation," determining how much to put in each type of fund.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. and ~20-30% in a foreign stock index fund. However, there are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion.

If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information. If you find it too confusing, contact a professional financial advisor. They will charge you significant commissions, however.

Sources:

http://www.vanguard.com/VGApp/hnw/planningeducation
http://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
http://www.diehards.org/readsites.htm
http://finance.yahoo.com/education/begin_investing
http://finance.yahoo.com/funds/basics

Asset Allocation Calculators
(Determining how much to put in stocks and how much into bonds and money markets is a personal decision depending on your financial status. These Asset Allocation questionaires give you a rough idea how to do this. I like Vanguard best, but try some of the other sites as well.)
https://flagship.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education
https://ais2.tiaa-cref.org/cgi-bin/WebObjects.exe/DTAssetAlcEval
http://www.ifa.com/SurveyNET/index.aspx

Web forum: http://www.diehards.org/
(Many investment web forums are overrun by scam artists. This one seems the most legitimate site.)

Admin

David 07.07.2011. 02:05

What is the minimum budget for investing in stock market and mutual fund? I'm looking for long term investment and the things that i want to invest is the green tech company and nanotechnology company. Do you know where can i find the company, broker, and the people for help.
Thanks

David

Admin 07.07.2011. 02:05

You should budget a portion of your cash flow for investing, a percentage of your salary. The value of a regular stream of money is surprisingly high and is often underestimated, a $5 coffee everyday forever has a net present value of $61,738.84 at a risk free rate of 3% per annum. That $100 a month iPhone contract is kept at $100 per month forever has a netpresent value of $40,547.06. Basically every kid that upon striking out on their own decides to have the luxuries of cable, iphone and morning Starbuck's is tossing the equivalent of $140,000 away without considering what the value really is.

In general, it's accepted that you should start with $2,000 to $3,000 before making your first trade as the commissions will be too high an overhead to overcome with smaller trades but till you accumulate that much, you can contribute to a bond ladder or bond fund in your brokerage account as bonds can be bought in small denominations. There are also some mutual funds where you can start out with very little money too.

Investing is difficult enough as it is, once you start putting restrictions like green companies and dreams like nanotech companies in as requirements, you are severely handicapping yourself and presenting yourself with a seriously steep learning curve in learning how to pick stocks in those sectors. You will get much better returns for your efforts by starting with a total market index fund such as VTI or SPY and just read up on your sectors of interest till you have the capital and the knowledge to strike out on your own.

There are many brokers out there with the better known ones being Fidelity and Schwabs. Banks also offer direct investment accounts though it's generally acknowledged that a brokerage will give you lower commission rates and be more agnostic with their advice. I've seen banks sell geriatrics on good conservative funds that unfortunately would have such a high load that the net effect would be the investment could do no better than a CD.

No one is going to have only your personal finance as their motivations in the investments they recommend, all financial investors are in the business of maximizing fees and commissions. Maximizing your returns is only a matter of being able to continue to maximize those fees and commissions so you really need to try and educate yourself for personal finance and investing. It's not as difficult as it appears and though you may never be a Warren Buffet, you can certainly do better than following the advice of others.

The advice that you have from Internet forums like this may be free of profit motive for the most part but are predominately from amateurs and should be taken with a grain of salt. You can learn a lot from these forums both from the answers and from trying to answer questions but don't take advice from the forums, at least not without researching them yourself. Many of the answers are off the cuff and not well thought out, many more are pure hypothesis as we learn on the forum. Many people only try to understand financing because of encountering financial hardships and hence may not actually have had a good track record to date, many have done well but perhaps without a full understanding of why but a fairly strong opinion that they do. You have to look to yourself when it's your own financial future that's on the table.

Admin

Michael 01.12.2010. 22:09

What are my options for a good no-load mutual fund? I am looking for a 5-star fund to stick $2,000 into (no-load). I am into stocks like Citigroup where yea, there is a risk, but has some potential promising returns as it is undervalued. Doesn't have to be bank stocks, though. I'd even consider more than 1 fund pending the minimum investment allows for it.

Thank you.

Michael

Admin 01.12.2010. 22:09

If you're trying to invest in undervalued stocks (and now is a great time for that), choose value funds. Of course, you still want to have an allocation appropriate for your objectives and risk tolerance. Don't automatically assume the no-loads are the way to go either. Because fund company's have become very competitive, there are no-load funds with very low expense ratios, but traditionally no-loads have the highest expense charges because the marketing costs that are traditionally paid for by sales loads are instead part of the fund's operating expense.

Admin

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