Kicking butt in Mutual fund investing

For all investors, both new and old, getting a leg up is a big deal. While there is no magic formula to guarantee that you’ll never lose your money in investing, there are a series of common sense tips that will help you avoid common traps in mutual funds that can lead to you meeting both your short and long term investing goals.

A good first tip is to watch the fees and expenses. While 1 percent here and 2 percent there may not seem like much, those fees are coming right out of your profit, so keeping them at a minimum is very important. Try to stick to no-load mutual funds, they have fewer fees than load funds. Also, watch the management fees that a company charges on their funds. These vary a lot from company to company.

Have a good idea what the tax implications are on your mutual funds. There is more than just capital gains tax out there, and the amount of tax, when your fund is taxed and how it’s taxed can vary. The amount of tax you have to pay also depends on what tax bracket your income falls into. Make sure you understand all the ins and outs of taxes before you choose a fund to invest in.

Take a look at how large the mutual fund is and how long it’s been around for. The size of the fund matters because the bigger the fund, the less impact one individual stock has. If the fund has grown from the previous year, take that into consideration when checking last year’s performance reports. It’s possible that last year’s results were because the fund was smaller and the performance of one stock, either up or down, had a much larger impact on the fund.

Finally, make sure you understand the volatility of the fund. While the old adage rings true that you can’t win the game unless you play, you can still invest in mutual funds and seriously limit your risk. It all depends on what your financial goals are and how much risk you feel comfortable taking. If your goals are close, than you might want to invest in lower risk funds. If your goals are far off into the future, you can afford to take more chances.

The world of mutual funds can be exciting and fun for new investors. But no matter how much money you’re making, you must remember that it can all go sour. But with the proper knowledge and preparation, you can have a long and successful career in mutual fund investing.

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Investing during an unstable market

There are many buzzwords associated with investing, words that, as an investor, you’ll probably get sick of after a while. You can only listen to so much advice telling you to be disciplined when you just got a hot tip that Fidelity Investment’s mutual fund is about to explode. One of those buzzwords that people hate to hear is market volatility. Volatility is a part of investing, plain and simple. If that concept makes you feel queasy, join the club. There have been patterns over the years in the Dow and the Nasdaq where a slow and steady climb happened. Most of the mid to late 1990s saw a slow and steady rise in the markets. The only real blemish on the market during that time was the mini-crash of 1997. Even then, the market showed a gain for the year.

So, how do you cope with market volatility? There are many different strategies that are used, and most of them include investing discipline. Studies have shown that during periods of extreme market volatility, like after the attacks of September 11, the market has rebounded and gone on a bit of a run. A great way to deal with volatility like that is to move some of your money into funds or stocks that might be a little lower risk and focus on blue chip stocks. When you and your broker feel that the market is at or near the bottom, you can invest in technologies or companies that you feel will be in high demand in the near future. Just because the market is doing its best yo-yo impersonation, is no reason to take your money and go home.

Another common practice is known as dollar-cost averaging. This is the practice of waiting until a particular stock that’s going through a rough period and waiting for it to bottom out. While the exact time of a stock bottoming out is unknown, most wait until the stock sets a record low, and then they pour thousands of dollars into that stock. The same technique can be used with the market as a whole. If the Dow is experiencing a series of bad days, some investors with withdraw all their money, wait for the Dow to set a 30 or 60 day low, and then shove everything back in at once. While there is no guarantee of this working, it’s been a common practice recommended by brokers the world over for generations.

Dealing with market volatility isn’t easy, but it is part of investing. If you’re a smart investor, however, market volatility won’t mean the end of your investment.

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How to cash in your funds

Well, you’ve played the market like an expert, researched exactly the right mutual fund for you, and the fund that you’ve taken under your wing is showing a big, fat profit and you want to use a little of that money to go buy something nice. But how do you get your money back that is in the fund? And what sort of fees will be associated with that? Let’s take a look.

One of the best aspects of mutual funds is that they are “liquid”. That means that you can change your cash into mutual funds and back to cash right away with no delays. For many investors, especially first time investors who may not have a lot of extra income, liquidity is extremely important in an investment. If you need quick access to your money, you get it with mutual funds.

In some cases, you won’t even have to cash in your funds to use the money that is in them. A few different types of mutual funds, such as some fixed-income mutual funds and most types of money market mutual funds come with the ability to write checks against the money in your mutual fund. These are exactly like the checks your credit card company sends you. You’re writing a check that will be withdrawn from the amount you have invested in your mutual funds.

Many different mutual funds offer a program where you can contact the fund either over the Internet or by phone and let them know that you want to cash in a percentage of your holdings. While this transaction can take a few days, the mutual fund company will immediately transfer the cash value of your transaction into an account that you’ll have checks for. So while it may take a few days to cash in your shares, you will have instant access to the money in your account.

A final way that people usually withdraw money from their mutual fund is by a bank wire transfer. You simply tell the fund that you want to take some money out and they will wire it to your savings or checking account. Many funds, however, do require this request in writing and you will have to get an authorized form through your bank that can be sent to your mutual fund. This is done mainly to prevent fraud.

As you can see, taking money out of a mutual fund is quick and easy. The liquidity of mutual funds may be their strongest point since you know your money won’t even be out of reach when you need it.

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How much will college cost?

When you think back, the days of sitting in your dorm room debating the merits of your schools football team don’t seem that far away. But before you know it, little Billy and Sally are going to be headed off to the same hallowed halls that you once ran amuck in.

Of all the goals that people save and invest to meet, the college education of their children is near the top of the list. While you may still be paying off your college loans, getting an idea of how much school will cost for them is a valid concern.

Taking a look at the cost over the last few years, prices are continuing to go up. While the average increase per year is about 5 percent, from 2003 to 2004, public universities and colleges raised their tuition by a staggering 14 percent in one year. That is more than four times the current rate of inflation.

Assuming you didn’t choke reading that last paragraph, what can you do to try to figure out what college will cost for your kids? Well, the first step is trying to figure out which kind of school little Billy or Sally will want to attend. The least expensive choice would be an in-state, public university. The average cost of these in 2005 was around $67,000 for four years. And that is assuming that your child graduates in four years, most students these days do not.

The next choice up the ladder is attending a public school out of state. This can be a good choice if your child shows an aptitude for a major that another school out of state is highly regarded in. The average cost in 2005 for four years at an out of state public school is around $100,000 dollars.

The most expensive but some believe the best option would be a private university. These schools don’t figure in residency into their tuition numbers. For four years at a private school in 2005, the cost was around $137,000. Also, you should take into consideration majors, such as medicine or law, which take more than four years.

A final tip to consider is that these days, a bachelor’s degree is worth less and less. Graduate school is becoming more and more common just to be able to get a good job. And the tuition rates charged for grad school are usually much higher.

Paying for college isn’t easy. But with sound financial planning and a good knowledge of what it will cost in the future, saving for school doesn’t have to be as nightmarish as you think.

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How does Capital Gains tax affect me?

If you listen to any conservative talk shows long enough, whether it be Rush Limbaugh or Bill O’Rilley, you’re bound to hear the topic of capital gains tax brought up. From listening to these pundits, you would think capital gains is the most evil form of taxation known to man. But what is capital gains really and how does it affect mutual fund investors?

Mutual fund investors can get hit pretty hard by capital gains taxes. Breaking down the name, capital is in reference to the profit made from investing in mutual funds. A mutual fund can actually get dinged twice by capital gains tax, once when you own the shares and the fund is earning profits for you, and again on the profit you make when you decide its time to sell off the shares in the mutual fund.

The gain is simply defined as the difference between the price you bought your mutual fund for and the price you sold your mutual fund for. The gains that are associated with mutual funds are usually broken down into two different categories: realized gains and unrealized gains.

An unrealized gain is defined as a gain that you can see but you haven’t actually been paid yet. For example, let’s say you open the morning paper and see that your mutual fund has gone up 5 points and once you crunch the numbers, you realize that you made 2,000 dollars. Until this money is paid out to you, this is qualified as an unrealized gain.

A realized gain, on the other hand, is a gain that has been paid out, or realized.

Capital gains taxes can also be broken down into two different categories known as long term and short term. A short term capital gain is taxed at a different rate than a long term gain. The short term gain is usually taxed at whatever tax bracket you’re in. As for long term gains, they are usually taxed at a rate somewhere between 10 and 20 percent, depending on the tax bracket you’re in.

One positive is that your mutual fund company is required to tell you exactly how much potential tax could be taken out of your investments in their prospectus. This way, you’ll go into every investment with your eyes wide open.

Capital gains tax is isn’t a lot of fun to deal with but they are part of mutual fund investing. Recent tax laws have benefited investors by lowering the amount of tax you pay, but there is still a significant amount of tax there, and it won’t be going away any time soon.

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Retirement investing for women

The idea that investing for retirement would be different for women than it would be for men may seem silly and even slightly insulting at first glance. The idea isn’t meant to be sexist in any way, but there are a number of factors that tend to be different in lives of women that make this topic vitally important.

The first is the fact that women are paid less for the same job in the modern workforce. While this margin has been getting smaller and smaller over time, it’s still significant. In a recent study by the United States Department of Labour, women were shown to earn 24 percent less than men for doing the exact same job. This can have serious implications when it comes to investing for retirement.

The same study by the Department of Labour also showed that women, on average, spend less time working than men. A gap of seven years was present in the study due to time that some women take off to have children, raise a family or care for elderly or sick parents. While the obvious impact to the amount of money earned in a lifetime is obvious, there is also the impact on any sort of savings plan through work, as well as less social security.

As if that wasn’t bad enough, the last United States Census showed that women are living an average of seven years longer than men. So, not only are women earning less and in fewer years in the workforce, they also live longer which means they need to save more for retirement.

What does all this mean? It means that women might need to take a slightly more aggressive path toward investing for their retirement. It also means that women need to start even earlier than men to start saving and investing. Other good tips are to set different goals than your husband, since your set of circumstances are different. You might also want to have even more diversification in your portfolio than most so that if some of your investments go sour, you won’t be left with nothing. It’s also a good idea to stay on top of your investments. Reviewing them on a regular basis lets you know where your doing well and where you might need to make changes.

While it’s unfortunate that a woman may need a completely different investing plan for retirement than her husband, the fact remains that there are forces conspiring against women in the workplace. But with the right strategy and the proper goals, everyone can enjoy a healthy and prosperous retirement.

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Retirement budget

For many, retirement seems like a far-away stage of their lives, filled with carefree days with nothing to do but travel, sip wine and watch the sun set. While this may be the reality for some, for most people who don’t budget properly for retirement, their golden years are filled with work and penny pinching, not relaxing. Planning a budget for retiring is extremely important and a vital tool to properly saving.

A commonly used mathematical approach is to say that you need, on average 70 or 80 percent of what you make now per year to live on once you retire. A big part of what you need to figure in is how you plan on spending your retirement years. If you’re looking to travel the world and stay at 5-star hotels, you might want to budget on the high side. If you’re happy staying at home and relaxing, you can budget on the lower end.

To figure out your retirement budget, there a few things you need to do. First, figure out where your retirement income is going to come from and how much of it there will be. Most people get retirement income from a variety of sources like the 401(k) plan they had at various jobs they worked over the years, social security payments, retirement investments and savings as well as any possible income from a job that you would work after retirement. To figure how much you would be getting from social security, check the statements they send you in the mail and the amount you would be getting is broken down there.

The next logical step is to try to estimate your list of expenses. While this can be extremely difficult for those that are looking decades ahead, it’s best to try to put together some kind of plan. The best way to approach it is to itemize your expenses and break them down by category, such as living expenses, utilities, health care and so on.

A few final tips that can help you in the long run is to try to take care of all of your debt before you retire. Paying off the credit cards or your mortgage in one lump sum will help you out in the long run.

Don’t forget any possible dependants. If you are responsible for the expenses of others, you must figure them in, too.

Retirement can either be a wonderful time filled with happiness or it can be a scary time filled with uncertainty. The road you walk down is up to you. The choices you make now will influence how you spend the best years of your life.

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Mutual Funds Benefits

Every kind of investing has its ups and downs. Those that deal in stocks enjoy the way that stock ownership works and that it meets their investing goals. The same can be said for those that invest in mutual funds. There are both positives and negatives to investing in mutual funds, and we’ll take a look at some of those positives right now.

Maybe the most reassuring aspect of investing in mutual funds is the knowledge that your fund is being managed and taken care of by a professional. With stock and bond trading, your best weapon is your gut instinct and a dog-eared copy of the Wall Street Journal. With mutual funds, you’re trusting your investment to someone who probably has the Journal memorized and also has an entire corporation’s brain trust at his disposal.

For those that are working on a tight budget and may not have much wiggle room, mutual funds are a great choice because they have maximum liquidity. Liquidity is the ability to get your cash back on your investment if you need to. With some investments, your money is tied up for extended periods of time with no way for you to access it without huge penalties. Mutual funds allow you to sell back what you’ve bought at the end of every trading day so you can have instant access to your money.

A common buzzword associated with investing is diversification. It’s based on the premise that you don’t want all of your investments on the same thing. Since mutual funds invest in stocks, commodities, bonds and other things, you can help to diversity your investment portfolio instantly with mutual fund investing.

A big plus for those that are new to investing is how easy mutual fund investing is. Most investors don’t even have to worry about paying the proper tax and keeping the right records because mutual fund companies provide these services as part of managing your money. They are a fantastic way for first time investors to experiment in the market.

Finally, mutual funds provide a huge amount of choice when it comes to investing. No matter how much you want to invest, how much risk you want to take or what your short and long term goals are, there is a mutual fund that is right for you.

While no form of investing is risk-free, mutual funds provide a broad set of choices that are perfect for first time investors and seasoned vets, alike. For a growing number of people, mutual funds are the best investment deal out there.

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Mutual Funds and fees

While mutual funds have become one of the most popular and accessible forms of investing, they do come with a few strings attached. It doesn’t matter what sort of investing you are trying, stocks, bonds, securities and even mutual funds come with fees. But how can you tell what kind of fund has what kind of fee and what are the different kinds of fees out there?

A common fee connected to mutual funds that are bought through a broker or a third party is a sales charge. One of the major advantages of buying your mutual funds directly through the company that sells them is that you can usually avoid the sales charge fee.

One of the most important lessons you can learn about mutual fund investing is to always look for no-load mutual funds. A no-load fund has no fees attached. But what if you see a load fund that you really want to try? Load funds are broken down into thee classes: A, B and C. Each letter carries a different set of fee rules. For A load funds, you can expect to have a 4-6% chunk of your investment taken once you buy the fund. There is an additional annual fee of about .25% that is also taken out. For B funds, there is no fee taken out at the beginning, but there is a fee once you want to take your money out of the mutual funds. This fee does go away after six years of having the fund, but you will get dinged if you try to take your money out any sooner. For C funds, they are free of both the beginning and ending fee, but they do have an annual fee that can fluctuate depending on the fund contract you signed.

All mutual funds, regardless if they are load or no load, do come with a management fee. This is like a commission that is paid to the folks that manage your fund and help it make money. This fee is usually fairly small and almost never crosses 1 percent. While it always stinks to have to pay fees, at least with this one you’re rewarding the people that are helping you make money.

While fees are a fact of life when dealing with mutual funds, the best thing you can do as an investor is to stay away from load funds at all costs. Keep your money working for you and not in the pocket of a broker.

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List of mistakes investors make

In the rush to be a part of the exciting and profitable world of mutual fund investing, many investors make mistakes. It’s human nature and nothing to be ashamed of, but they can and should be avoided. Here are a few helpful tips in avoiding the common mistakes that many other new investors make.

First off, a cardinal sin that many new investors make is that they only look at a mutual funds previous performance and not at the possible future. Sure, a stock or mutual funds performance in the past is a good sign of how its been managed and it always is a good sign to surround yourself with people who know what their doing, but you have to take the current state of the market into account. For example, funds that may have been heavy on dot.com’s did great in 1998 and 1999, but if you had a fund that was heavy in tech stocks in 2000, you probably lost your shirt. Past performance doesn’t mean as much as people think it does, and you would be wise to not put as much emphasis on it when you go to invest.

While the percentages listed in the prospectus might seem low, operating expenses for mutual funds really do matter. If you’re looking at a fund that might have a higher than average percent fee for running the fund, you might want to look at other funds, instead. Most market experts think that the percentage of returns over the next few years will be down, and so that fee for running the fund takes a bigger and bigger bite out of your profit. It may not seem like much, but it can really add up over time, especially if profits are down.

A small but important part of investing is checking out what your fund manager has on his plate. This can be done by checking the prospectus the fund company sent you. Remember, if your fund is doing bang up business, it’s likely that the fund manager who is overseeing it is going to get more funds to manage or a promotion to look over an entire group of funds. This could likely take away from the time he has to look over YOUR fund, and while we wish fund managers all the luck in the world in their career, you want someone who is going to be focused on making money for you.

As long as there are people investing in mutual funds, there will be mistakes made. While they can’t be avoided completely, a few common sense tips can help you avoid the biggies and keep your money working for you.

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Where can you buy mutual funds?

For those that are new to investing and have decided that mutual funds are the way to go, the next logical question is how do you go about purchasing them? There are many different ways to go about investing in mutual funds, and you have several different options to choose from.

One of the most popular ways to buy mutual funds is directly from the companies. The type of fund you want to look for is a no-load mutual fund. No-load funds are free from fees and additional costs that load funds tend to have. Since you’re going directly through to the fund company, you will save a transaction fee that you would normally have to pay through a broker, and since you aren’t paying any fees, all of your money goes towards investing.

Going about investing directly is easy. Once you’ve chosen the company you want to deal with, you simply fill out an application, enclose a check for the amount you want to invest and mail it in. It couldn’t be easier.

Another popular way to buy mutual funds is online through a broker or through a mutual fund superstore. Most of these online superstores like T. Rowe Price or Wells Fargo (there are many others, as well) don’t charge any transaction fees for their services because the fund you end up buying will reimburse them. Be careful though, these online superstores often sell funds that do carry transaction fees or they carry load mutual funds that can come with some steep fees of their own. Make sure you read all the fine print and know what you’re investing in before you buy it.

Maybe the most common way of buying mutual funds is through your work’s retirement program. Your 401(k) account is most likely tied to mutual funds so you may already be a seasoned mutual fund investor and not even know it. To find out more about the funds your retirement plan invests in, you can visit the website of the fund that your 401(k) invests in.

If you have signed up for a 529 College Saving Plan, than you’ve bought into mutual funds. These brand new plans are made for families who are trying to help their kids through college. Their main benefit is the tax laws that are used for withdrawals from the plan. In most cases, if money is taken out for education expenses, it’s tax free. This is an ideal plan for most families who are worrying about paying for college.

A final way that you can invest in mutual funds is with a financial advisor. While this way would be a bit more costly since you would have to pay the advisor, you are bound to make the best mutual fund investment choice for you.

Buying mutual funds in this day and age of the Internet is easier than it has ever been. But be careful, make sure you crunch the numbers and make an educated choice and you can be well on your way to financial freedom with mutual funds!

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What is your risk tolerance?

One of the biggest parts of investing is determining your own risk tolerance. When most people think of risk tolerance, they think, “How much can I stand to lose before I start to struggle.” Risk is a huge part of investing because it dictates what sort of mutual funds you can put your money into, how much money you can invest and for how long. Knowing your risk tolerance is one of the biggest keys to successful investing.

Risk is usually defined as short term volatility in prices or variability in prices. But there is a whole other kind of risk at the other end of the spectrum. The risk of not meeting your goals by investing. The main reason why anyone begins to invest is to meet goals that they have set for themselves. The most common goal in investing is saving money for retirement or for that second home. Risk goes both ways, there is the chance you could lose your shirt with an investment, and the chance that if you don’t take enough risks, you won’t meet the goals you’ve set for yourself.

The first thing you need to do is to take a personal assessment of your own risk and develop what is known as an investment personality. Everyone’s personality will be different, they are unique like fingerprints. Some investors can stand to take some big chances now with the lure of a potential payoff down the road, while others who may not have much time between the time they start investing and the point where their financial goals need to be realized and can’t take big risks. A good barometer to judge what your risk will be is how will you feel in your capital goes up, down or stays the same? Are you willing to be patient and accept small increases, or do you want to see the most possible movement? If you’re sitting at your computer right now ringing your hands in fear that you might lose money on your investment, you should already be able to tell exactly what sort of investor you are.Assessing both ends of your risk tolerance is quite possibly the most important single financial decision you can make. Knowing how much money you can invest, how long you need to invest it for and what kind of mutual funds you want to buy into is very important. Once you determine your own risk tolerance, you will be ready to take the next step and start investing.

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What is automatic investing?

For many, the idea of investing in mutual funds, stocks and bonds is appealing, but it all seems too complicated. Too much jargon, too much danger, too much hassle. Thankfully, the companies that run mutual funds know this and have come up with a way for new investors who may not have a big wad of cash to invest right off the bat.

It’s called automatic investing and it is highly recommended for those new to mutual funds and for those that want to invest but don’t have a lot of up-front funds.

Automatic investing is done through a mutual fund company, and what happens is, you sign up to purchase a set amount of funds either every month or every few months (usually quarterly). You buy a bit at a time, whatever you feel you can afford, and your shares are managed by the mutual fund company. It is a great way to watch a nest egg form from money you didn’t even know you had.

A great part about automatic investing is that most mutual fund companies are so excited to get new investors in, they will waive most if not all transaction and investment fees for those that are signing up for automatic investing. They understand you may not have a lot of extra cash to throw away on fees and they want you to get your feet wet with mutual funds.

Maybe the best part about automatic investing is that it is a very disciplined form of investing. Instead of opening up an E-Trade account and investing from your home computer, an investment expert at the mutual fund company that you invest in will handle your shares and in this case, it is probably best to let the experts handle it. It’s extremely tempting to chase mutual funds when investing yourself. You hear the latest news about funds that may be surging and its tempting to take your money and jump on the hottest fund, but disciplined, long-term investing is a much more beneficial way to go.

Whichever company you choose to use for automatic investing will supply you with a prospectus that will outline all of the fees that may or may not be associated with your account. This is key since you’ll need to know what any possible cost might be for things like early withdrawals.

For many, automatic investing takes the guesswork and the fear out of mutual fund investing by allowing a large amount of money to build up over time. Contact a mutual fund company to see if automatic investing is right for you!

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