Best wishes,
M. Chowdhury
www.amreteckpharma.com mutual funds and money market funds are based on the market at the close of each day. If you are a high risk investor, or a new investor, they would be a wiser choice as apposed to slower earing annuities. I don't think anyone would recommend that you "DON"T"
Your portfolio should be diversified with high low and medium risk.
The percentage depends on where you are within your investment cycle. Young- more high risk Older much less high risk if at all. Historically mutual funds due worse than the DOW. Even ones that do beat the DOW industrial average only do so for at most five years. Minus all the fees you may end up making less than what you would on your own. I always tell people to look into self directed IRAs There are several negatives of funds that must be weighed against the positivesl
Mutual fund fees
Most mutual funds underperform the stock averages.
You pay taxes on year end captal gains often taken by fund managers.
Theoretically you make money by buying low and selling high. The cash flows of the mutual fund makes it difficult for Mutual funds to buy low and sell high. Customers purchase fund units when markets are rising and high, and sell or stay away when markets are poor. However skilled the mutual fund management they are seriously hampered by cash flows i.e. money to invest. that are high when markets are high and low or negative when markets are low. You cant buy low if your customers want their money back and give you no more. This is one explanation of the fund difficulty in matching market indices.
It would be wrong to merely look at the negatives.
For the average person with no knowledge of markets or investing skills, the mutul fund
makes it possible to invest small saving amounts on a regular basis for dollar cost averaging thus you get both low buys and high buys.
Professioanl management to do the stock analysis and selection
Useful comparisons of mutual fund results are published regularly in the press and magazines
Diversification of assets. The fund can invest in several hundred stocks while you could not do so. There is probably nothing as important in the investment of life savings as risk control through diversification.
the reason there are so many ways to invest is that each has its advantages and disadvantages. it is wise to know the advantages and disadvantages and suit your method to your own knowledge skills and circumstances Mutual funds are appropriate for some and the wrong investment for a growing number of people.
For me, I would NOT invest in mutual funds if it weren't for having a 401K.
Overall, Mutual funds are not good (once you're educated) and many people should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).
Here's why.
First of all, mutual funds exist to take average person's money.
Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds. As was stated over 80% of the mutual funds out there can't even outperform the market. That's VERY SAD!
Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.
Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in NOT "losing" you lots of money. That way you stay with them and they continue to collect their fees.
Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.
Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.
Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).
Convniced yet? Need more?
Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc. or right now, Healthcare, Retail, and insurance!
Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like microsoft, at&t, home depot, cisco, ebay which have been sideways for years? I think not.
A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but without the extra overhead!
See amex.com (american stock exchange) or ishares.com, holders.com for more info.
You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many).
Let me know if you have further questions.
Best of luck! |
