February 5, 2006

In the last edition I said we'd continue with some information on Mutual Funds, so let's dive right in.

One way to “get into the market” as a beginner is to invest in mutual funds. There are many types of funds out there. Load, no load, growth, value, sector; All describe something about funds, but what does is all mean? Do you want a load? What’s a load or a no load? Who wouldn’t want a fund that grows? Is that what a growth fund means? Well, I gotta get me one of those.

A “Mutual Fund” is just a collection of stocks and bonds. Sounds simple enough, right That is the purpose of investing, to get a collection of investments… Well, no, not exactly. The purpose is to have your money working for you to make you piles more money. (At least that’s the way I see it.) Most people do have a mixture of stocks and bonds in their account.

An easy way to do that, without picking individual items, is to have someone else do it for you. That is where we get to the mutual fund. And why would someone want to do that for you?? To make money themselves. Nothing’s wrong with that. That’s our system. You pay people to perform a service for you. So how do the fund managers make money? They are loads on your wagon. That’s why you hear about load and no load funds…

But seriously, Load and No-Load funds are one way of describing how the fund is managed. Typically a Load fund is one that charges you as you buy into a fund. This means there is an up front sales fee for buying shares of the fund, and then the management fees are low or maybe there are no management fees. A No-Load fund the opposite is true. No load means you buy into a fund and then there is a maintenance fee. Somehow the people who are managing your money in a fund are making money for the service they provide, which is all well and good. I don’t personally have any mutual funds in my personal account, but in my 401K I do.

Generally funds are described by what you want to get out of your investment. An Equity Fund is a long term account, where you are looking to stay around and build value with the gradual growth and building of the companies who’s stocks make up the fund. A Fixed Income Fund is mostly made of Bonds, and you are not looking to gain value, you are looking for a passive income. You get a check from the returns on the investments on a regular basis, instead of re-investing your profits to gain value in the fund. The third major type of fund is a Money Market Fund. This fund invests in short term items like treasury notes and is a ‘sure thing.’ Like all sure things there is a lower return on your investment. Another note. Most investing is not a sure thing.

Even though there are professionals running these mutual funds that doesn’t mean they can’t lose money. You just hope they will do a better job of mixing it up and choosing more wisely than you, since they are professionals.

That's all for this week. As always if you have questions on this or any other topic feel free to drop me a line.

Thanks

The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy