Safest Mutual Funds

The safest mutual funds have a great track record for safety, and they pay interest in the form of dividends. They have a share price that is pegged at $1, which does not fluctuate like the share price of other mutual funds. Trillions of investor dollars have been safely invested in these money market funds over the years.

In 2008-2009 millions of investors took major losses in mutual funds, and many of them made a false conclusion: that mutual funds in general are risky investments. This is not the case. Stock funds involve considerable risk, and longer-term bond funds come with moderate risk. Unfortunately, many investors had most of their investment assets in stock funds in 2007, and continued to hold them as the stock market tumbled.

High quality short-term bond funds involve less risk and money market funds (MMFs) are at the top of the list for safe mutual funds. If you want safety and/or are putting money aside for a shorter-term goal like college funding or to accumulate a down payment to buy real estate, consider investing in both of these fund types.

If you want to add safety to your retirement portfolio, hold these funds along side your stock funds and other investments.

Both bond funds (also called income funds) and money market funds pay interest in the form of dividends. These dividends are normally subject to income tax unless the fund is held in a tax-qualified plan (like a 401k or IRA). In this case the income from dividends is either tax deferred or tax free.

There are also tax-exempt (tax-free) income funds and MMFs designed for folks in higher tax brackets. These invest in municipal securities issued by government entities like the State of Ohio. The interest paid to investors (dividends) is free from federal income tax.

Traditional (taxable) money market funds and income funds invest in debt securities (IOUs) of the federal government, banks, and other corporations. Now, here's the difference between money market funds and bond or income funds, including short-term income funds.

All bonds and income funds come with interest rate risk. In simple terms this means that if you hold them you will lose money if interest rates in the economy go up. This risk is highest for long-term bonds and funds, and much lower for quality short-term bonds and short-term income funds, which are the safest bond funds.

The advantage of bonds (and funds that invest in them) is that they pay higher interest (dividends). Long-term income funds pay the most, and short-term bond funds pay the least. Generally, these short-term income funds pay a bit more in dividends than money market funds.

The traditional money market fund (MMF) invests in high quality short-term IOUs issued by the federal government (T-bills), banks and other major corporations. This short term debt is of very high quality and generally matures in a matter of weeks or months. This arena of investments is referred to as the money market.

Because of the short term nature of these securities, an MMF is continually replacing those securities that have matured with new ones at current competitive interest rates. Hence, as interest rates go up, so do the dividends for the fund. When interest rates fall, fund dividends do as well.

Due to the short term nature of their holdings, these funds have virtually no interest rate risk; and since their holdings are of such high quality there should be very little investment risk to be concerned with.

You can earn competitive interest rates by simply holding an MMF, with very little risk of losing money.

In the early 1980's investors earned double digit returns in money market funds because interest rates were at historical highs. Unfortunately, 2008-2009 ushered in a period of historically low interest rates, and MMF returns followed suite.

When rates rise, the dividends for these safest of mutual funds should as well.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Mutual Funds For New Investors

You want to get started as a mutual fund investor. What funds should you invest in? You have thousands of different mutual funds to choose from. I suggest you first open an account with a major no-load mutual fund company like Vanguard, Fidelity or T. Rowe Price. Then pick these two funds to invest in, investing an equal amount in each.

Remember, you are just getting your feet wet and don't want to start with a bad experience. So, here are what I suggest are your best mutual funds to get started with. Your overall risk will be low to moderate.

Your first pick is a no-brainer, a money market fund. These are the safest of all mutual funds and their value or price does not fluctuate. In this investment you simply earn interest in the form of dividends. The amount of interest you earn varies, based on interest rates in the economy.

There should be zero cost to invest in a money market fund, no commissions or sales charges called LOADS. Once you have money invested here, you can move it at will to other funds offered by the fund company (also called a fund family).

Keeping things simple, your other best "starter fund" is called a BALANCED FUND. These funds invest in both stocks and bonds, so risk is generally moderate. These days there are several variations of balanced funds, giving the investor plenty of latitude. There are traditional balanced funds, asset allocation funds, lifecycle funds and target retirement funds.

All balanced funds have a diversified portfolio of stocks and bonds, but they vary in terms of safety, dividends, and growth potential. Basically you can place them into three different risk categories: conservative, moderate, or aggressive. I suggest you go with a balanced fund labeled as moderate in the fund literature you get from the fund company.

Traditional balanced funds have been around for many years and have a moderate asset allocation of about 60% stocks and 40% bonds. This ratio of stocks to bonds remains fairly constant. These traditional funds are generally simply called "balanced funds", and are a good solid place to invest for the new investor.

If you want to get more conservative or aggressive, I suggest lifecycle funds. For example, an aggressive-growth lifecycle fund would be the riskiest and would be heavily invested in stocks vs. bonds. Dividends would be low to insignificant. On the other hand, a conservative lifecycle fund emphasizes bonds vs. stocks, and hence is safer and pays higher dividends.

For most new investors I suggest a traditional balanced fund, or a lifecycle fund labeled as either moderate-growth or conservative-growth.

With half of your money in a money market fund and half in a balanced fund you won't get rich quick, but you won't lose your shirt when things get ugly in the economy either.

Once you learn how to invest and gain in confidence, you can expand your horizons. All three of the fund families mentioned offer a wide array of investment choices. Plus, all three offer funds with no commissions, no sales charges ... NO-LOAD. Learn how to invest at your own pace. Until you feel up to speed, just relax and stick with your starter funds.

Earning Dividends With Mutual Funds

Everyone would like to find an investment which will continue growing even while they are collecting dividends. Maybe it sounds like a pipe dream to you, but in reality, you can find investments which will provide these benefits. Mutual funds that have dividends will give you a sound, dynamic investment as well as pay you an annual dividend. If you're a savvy investor, this is something you're going to want to check into.

The one drawback to earning dividends is that they are taxable. After all, they are income. In the United States, all dividends and interest earned through investments in mutual funds are subject to income tax. While you can't avoid the laws, you can be glad that you will be making the extra money to pay taxes on.

Continued Growth

The two main reasons people invest in mutual funds is to see their money grow while reaping a profit of dividends or interest. One way to make your funds grow even faster is by reinvesting the profits back into the fund. Most mutual funds will allow you to reinvest your dividends. All you need to do is ask your financial advisor to arrange it for you.

You'd be surprised how much you can maximize your investment by reinvesting dividends. After you do so, you will be earning dividends on both the initial investment as well as the dividends you reinvested. Over the long term, this can have a huge impact on your earning potential.

Keep Track of the Progress

Even if you have a financial advisor managing your portfolio, it's still important for you to understand how your mutual funds are performing. This is the only way any investor can know if he's doing well. It doesn't matter how much you've got invested. You need to stay on top of the progress you are making.

More specifically, you need to keep track of how much return you're getting from your investment in the form of dividends and interest. Legally, mutual fund companies have to send you summaries of all of your transactions. When the information arrives in the mail, take time to look it over to see how much progress you've made since the last statement. Hopefully you will see an increase in the number of shares you own as well as in the profit you have earned.

Low-Risk Investing in Mutual Funds

If you're working with a top mutual fund company, they will know how to use your money to increase your profit margin as well as their own. They are able to make the most of every investment, which is exactly what you're after. It never hurts if you know a little something about this type of funds, too, so that you can understand when you're investing in the right fund. Investing in the wrong fund will only waste your investment capital, and you won't see the return you should be seeing. Make sure you know exactly what you want from a fund before investing.

Mutual funds have become an industry favorite, because it doesn't take a great deal of money to get started. A novice investor should spend some time educating himself about current market trends, though. When you purchase mutual funds, you're buying shares in a company. As longtime investors say, your aim is to maximize your returns while minimizing your risks. Mutual funds certainly offer you the best option as far as being flexible, and they are very fast and easy to sell when that time comes.

In a poll taken by the media, consumers overwhelmingly voted for mutual funds as the best investment, mostly because there is so little risk involved. In recent years, investments in these funds have surpassed national saving certificates and the public provident fund as the best way to save money. Investors also find that they can save on taxes by investing in them.

If you're new to investing, you will find a great deal of information on the internet that will teach you the best ways to buy and sell funds so that you can save money on your investments and earn maximum profit.

For short-term investments, you can't beat a higher risk fund. You can find funds which have won performance awards, but check them out thoroughly to make sure they fit into your investment plans before investing. As mentioned earlier, you can find a ton of helpful information regarding mutual funds just by researching on the internet.

If you're looking to save tax dollars by investing in mutual funds, you'll want to manage your funds carefully and keep track of what's going on in the market. If you don't know which funds are the best investments for you, you can always go to a broker for assistance.

It's getting harder to make ends meet in the world today, but you can make it easier by investing in the right funds. By having a cushion in the low-risk mutual fund market, you'll be able to weather the blows life throws at you with a great deal less stress.

If you're worried about your retirement years or paying for your child's education, you'll find help in mutual funds. In fact, you can make enough by investing in these funds to make your whole life much easier to live. With mutual funds, instead of you having to work for the money, it works for you.

Confused Mutual Fund Investor

With so many options for investing, concerns over who to trust and the lack of useful information from the mutual funds themselves, understanding the principles of growing money and good guidance makes a huge difference in outcome.

It's important for an investor to understand the mutual fund industry; specifically, to understand what this means to him or her individually. The mutual fund industry has really created a giant that is so overwhelming and confusing for the average investor that they almost fall down to their knees and say "Uncle." In this article, I'll show how this confusion happens.

There are some choices that you have when you invest: You can buy a growth fund, you can buy a growth and income fund, you can buy an income fund, you can buy an aggressive growth fund, a large cap growth fund, a mid cap growth fund, a small cap growth cap fund, a small cap international growth fund, a stable income fund, a large cap value fund, an international value fund, a target maturity fund, a blended fund. Of all those target maturity funds, you can by a 10, a 15, a 20, a 25, a 20-30 target maturity fund. Then there are blended funds, specialty funds, which could be in real estate or commodities or technology or health care or utilities or energy or green energy or social responsibility funds. And this is nowhere near exhausting the list. No wonder investors get confused.

The average investor works eight hours a day, then has to tend to personal matters, family, home, etc. Maybe they get some recreational time if they're lucky. And if they're really, really lucky, they get to see a friend once a month, and maybe spend time with their spouse or partner if they have the time. Is it any wonder that investors turn to financial advisors or just kind of throw their hands up and say, "I -- I really don't know. Just give me something. Make it clear. Better yet, you do it Mr. Financial Advisor."

Some mutual fund companies have as many as 300 mutual funds, plus even more choices and confusing explanations on top of that. By presenting you with something called share class (or share type), the mutual fund industry makes investing even more overwhelming. Makes one wonder, is the object to invest or to confuse?

Here is very brief history on share class. It was rule 18F-3, it came out in 1995, and basically what this allowed was the mutual fund industry to come out with different types of share classes. At one of the largest fund families in the world, there are 14 different classes of shares.

Here are a couple of examples: You can buy Class A, which is a front-end load that has a fee anywhere from 3-6%. You can get a Class B, which has no front-end load, but it has a 12B-1 fee, which is a marketing fee which will be there for 5 years. The broker who sells this fund to you gets that 12B-1 fee all up front, all 5 years of it, which is about equal to the front-end load that the investor thought he or she was getting away from. It's actually a sales commission. If the investor sells these shares before the 5-year period, the balance of the deferred sales fee is deducted from the sale.

Another example: The Class C share, which keeps the 12B-1 fee forever. The fee never goes away. 75% of those fees go to the financial advisor who sold the stock to the client. Now, these Class C shares are the favorites of financial advisors, because a financial advisor usually does not have a license to offer Class B shares, so they can't collect fees as they can on C shares; hence, they sell Class C shares to their clients.

The financial advisor will say to his or her clients, "Just so you know, I get paid from the mutual fund; but you'd have to pay those fees anyway." This is not true, because there is a share class where there are no fees, there are no front ends, back ends, side ends, or 12B-1 fees on them. So they really aren't being entirely honest with you.

Then there are Class D shares, which are sold through the supermarket funds, like Schwab, Fidelity, or Ameritrade; Class S shares and Class Z shares, which are closed to new investors; Class I shares and Class Y shares and so on. The average investor can quickly become confused about options and differences between funds and Class A, B, C, D, S and Z shares, and the different ways the 12B-1 fees apply. When all the different types of shares and mutual funds that are being offered are added up, there are about 100,000 and growing different products to choose from. This excludes stocks, bonds, exchange-traded funds or exchange-traded notes or closed end.

Conventional wisdom says that brokers should know more than their clients and have their best interest as first priority. But to do so, they have to first get good information themselves; and if the industry, as well as the companies they work for, are conflicted regarding the client's best interest, this can cause dangerous (to your money) and expensive problems.

Consider Before Investing in Mutual Funds

It is believed that an investment does not have to be complicated and difficult. The following are some of the things that you should take into consideration when deciding on investing in a fund. It can be also applied when considering investing in a property investment.

Investment objective

Setting an objective is common regarded as one of the major factors when deciding whether to invest in a fund. If you are investing for wealth accumulation and capital growth, then you might to consider aggressive equity fund. On the contrary, if you are investing for your retirement fund and you are about to retire soon, then you should consider investing in bond fund because the risk is much lower as compared to equity fund.

So long as you have defined your investment objective, it would not be difficult to figure out the right fund to match your investment need.

Risk profile

As people always say, the higher the risk; the higher the return. There are always risks when it comes to investing, it doesn't matter whether it is property investment or investing in mutual funds.

There are various risks of investing in mutual funds. Examples of risks include country risk, currency risk, performance risk, interest rate risk, management risk, foreign market risk, inflation risk as well as management risk.

If your risk appetite is not high and you cannot take most of the risks that mentioned above, you are not advised to invest in equity funds because these funds tend to have higher risks as compared to bond funds.

Truth About Mutual Fund Fees

Have you ever been "fee'd" to death? It's probably happening to you right now by the mutual fund industry, and you don't even know it. The worst part: the fees are deceptive, and you probably wouldn't pay them if you knew the truth.

The fee game involves getting "fee'd" to death by the mutual fund industry, what I like to call the "industrial-investment complex."

Here's some background: The fee that is charged is always presented as a percentage of assets under management. It's really smart for the mutual fund industry to do this. If they're managing a thousand dollars and their fee is 1 %, they're going to get $10. But if they're managing a billion dollars, the fee for assets under management is still the same percentage. It's still that small 1%. So the investor is thinking "Oh, wow, that's only 1%, that's small for all that service."

As the mutual fund industry has grown over the past 20 years, they manage more and more money; $10 trillion today, which comes to $500 billion in potential fees each year. That small fee that's shown as a percent of assets under management never looks that large. That's a main reason why investors think, "Oh wow, this is cheap and not that much" when, in fact, it's very expensive. Seemingly small percentages, added up and compounded over time, make a huge difference for your investments. Every unnecessary investment expense that recurs time and time again cuts deeply into your returns.

A much more equitable fee would be a percentage of income, or a percentage of performance. So if the fund grows its client's money 10%, it would charge the fee to performance and not the fee for assets under management. If it loses 40%, there would be a negative fee to performance. This would give a very accurate, absolute fee structure; however, the mutual fund industry would never do this because it would cut into their profits and show clients the truth, which is that fees are very, very expensive, and they are not good at growing your money.

There are also fees that you probably don't even see or know about. One of these is called the direct brokerage fee. This is how mutual fund companies pay inflated trading costs to their "preferred brokers." These preferred brokers are organizations that help the mutual fund industry sell and market their funds. So the mutual funds turn around and do business with them at an inflated rate. Basically, they're paying a higher rate than they have to.

Then there's what's called the principal-agent problem. This means the agent's attention is not on what is best for their client, but on what is best for the agent. What applies here is that they're not getting the best price for you. Instead of getting the best trading price that the public could get, they're giving business to a company based on how well they succeed at marketing to you, the investor.

Here's an example: In 2001, when the mutual fund industry was a lot smaller than it is today, America Funds, one of the largest fund companies in the world, paid out $34 dollars in direct brokerage fees. The brokers receiving these fees were selected purely because of "excellence" at marketing their funds to investors. That's an extra $34 million they paid out to organizations that helped sell their funds. That's a hidden fee that the mutual fund companies absolutely do not have to disclose for what it truly is: a sales commission.

It's completely bogus to pay these sums as brokerage commissions, but they do because it puts their funds at the top of a list, a list that your 'financial advisor' will promote to you. While this shows up on the books in such a way that it looks like the cost of conducting stock transactions, it's really a form of sales incentive that the clients end up paying for so that the mutual funds get sold to them. The brokers who sell the most mutual funds get a disproportionately large percentage.

The mutual fund industry calls this a brokerage commission, but it's really a sales commission. These are not investment companies; these are sales organizations masquerading as investment companies. What they are selling and trading is your future. You have to do something about it so your future isn't another pawn on a chess table. The first step in taking control of your financial future is to begin to understand the myths that are holding you b

Safest Mutual Funds

The safest mutual funds have a great track record for safety, and they pay interest in the form of dividends. They have a share price that is pegged at $1, which does not fluctuate like the share price of other mutual funds. Trillions of investor dollars have been safely invested in these money market funds over the years.

In 2008-2009 millions of investors took major losses in mutual funds, and many of them made a false conclusion: that mutual funds in general are risky investments. This is not the case. Stock funds involve considerable risk, and longer-term bond funds come with moderate risk. Unfortunately, many investors had most of their investment assets in stock funds in 2007, and continued to hold them as the stock market tumbled.

High quality short-term bond funds involve less risk and money market funds (MMFs) are at the top of the list for safe mutual funds. If you want safety and/or are putting money aside for a shorter-term goal like college funding or to accumulate a down payment to buy real estate, consider investing in both of these fund types.

If you want to add safety to your retirement portfolio, hold these funds along side your stock funds and other investments.

Both bond funds (also called income funds) and money market funds pay interest in the form of dividends. These dividends are normally subject to income tax unless the fund is held in a tax-qualified plan (like a 401k or IRA). In this case the income from dividends is either tax deferred or tax free.

There are also tax-exempt (tax-free) income funds and MMFs designed for folks in higher tax brackets. These invest in municipal securities issued by government entities like the State of Ohio. The interest paid to investors (dividends) is free from federal income tax.

Traditional (taxable) money market funds and income funds invest in debt securities (IOUs) of the federal government, banks, and other corporations. Now, here's the difference between money market funds and bond or income funds, including short-term income funds.

All bonds and income funds come with interest rate risk. In simple terms this means that if you hold them you will lose money if interest rates in the economy go up. This risk is highest for long-term bonds and funds, and much lower for quality short-term bonds and short-term income funds, which are the safest bond funds.

The advantage of bonds (and funds that invest in them) is that they pay higher interest (dividends). Long-term income funds pay the most, and short-term bond funds pay the least. Generally, these short-term income funds pay a bit more in dividends than money market funds.

The traditional money market fund (MMF) invests in high quality short-term IOUs issued by the federal government (T-bills), banks and other major corporations. This short term debt is of very high quality and generally matures in a matter of weeks or months. This arena of investments is referred to as the money market.

Because of the short term nature of these securities, an MMF is continually replacing those securities that have matured with new ones at current competitive interest rates. Hence, as interest rates go up, so do the dividends for the fund. When interest rates fall, fund dividends do as well.

Due to the short term nature of their holdings, these funds have virtually no interest rate risk; and since their holdings are of such high quality there should be very little investment risk to be concerned with.

You can earn competitive interest rates by simply holding an MMF, with very little risk of losing money.

In the early 1980's investors earned double digit returns in money market funds because interest rates were at historical highs. Unfortunately, 2008-2009 ushered in a period of historically low interest rates, and MMF returns followed suite.

When rates rise, the dividends for these safest of mutual funds should as well.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Mutual Funds

To manage an effective risk management solution requires more than the calculation of VaR. Ultimately a successful risk management program requires the execution of an effective hedge. Technical analysis is a vital element of this strategy.

Recent market reversals brought about by the Sub-Prime mortgage melt down is clearly a significant market correcting event. No matter if you work in the risk department of a large bank with many employees or a small fund of funds as co-manager, you share the same basic concerns regarding the management of your portfolio(s).

1. how to maintain top quartile performance;

2. how to protect assets in times of economic uncertainty;

3. how to expand business reputation to attract new client assets;

It remains common in the financial industry to hear experienced Portfolio Managers state their risk management program consists of timing the market using their superior asset picking skills. When questioned a little further it becomes apparent that some confusion exists when it comes to hedging and the use of derivatives as a risk management tool.

Risk management analysis can certainly be an intensive process for institutions like banks or insurance companies who tend to have many diverse divisions each with differing mandates and ability to add to the profit center of the parent company. However, not all companies are this complex. While hedge funds and pension plans can have a large asset base, they tend to be straight forward in the determination of risk.

While Value-at-Risk commonly known as VaR goes back many years, it was not until 1994 when J.P. Morgan bank developed its RiskMetrics model that VaR became a staple for financial institutions to measure their risk exposure. In its simplest terms, VaR measures the potential loss of a portfolio over a given time horizon, usually 1 day or 1 week, and determines the likelihood and magnitude of an adverse market movement. Thus, if the VaR on an asset determines a loss of $10 million at a one-week, 95% confidence level, then there is a 5% chance the value of the portfolio will drop more than $10 million over any given week in the year. The drawback of VaR is its inability to determine how much of a loss greater than $10 million will occur. This does not reduce its effectiveness as a critical risk measurement tool.

A sound risk management strategy must be integrated with the derivatives trading department. Now that the Portfolio Manager is aware of the risk he faces, he must implement some form of risk reducing strategy to reduce the likelihood of an unexpected market or economic event from reducing his portfolio value by $10 million or more. 3 options are available.

1. Do nothing - This will not look favourable to investors when their investment suffers a loss. Reputation suffers and a net draw down of assets will likely result;
2. Sell $10 million of the portfolio - Cash is dead money. Not good for returns in the event the market correcting event does not occur for several years. Being overly cautious keeps a good Portfolio Manger from achieving top quartile status;
3. Hedge - This is believed by all of the worlds largest and most sophisticated financial institutions to be the answer. Let’s examine how it’s done.

Hedging is really very simple, and once you understand the concept, the mechanics will astound you in their simplicity. Let’s examine a $100 million equity portfolio that tracks the S&P 500 and a VaR calculation of $10 million. An experienced CTA will recommend the Portfolio Manager sell short $10 million S&P 500 index futures on the Futures exchange. Now if the portfolio losses $10 million the hedge will gain $10 million. The net result is zero loss.

Some critics will argue the market correcting event may not happen for many years and the result of the loss from the hedge will adversely affect returns. While true, there is an answer to this problem which is hotly debated. After all, the whole purpose of implementing a hedge is because of the inability to accurately predict the timing of these significant market correcting events. The answer is the use of technical analysis to assist in the placement of buy and sell orders for your hedge.

Technical analysis has the ability to remove emotional decisions from trading. It also provides the trader with an unbiased view of recent events and trends as well as longer term events and trends. For example, a head and shoulders formation or a double top will indicate an important rally may be coming to an end with an imminent correction to follow. While timing may be in dispute, there is no question a full hedge is warranted. Reaching a major support level might warrant the unwinding of 30% of the hedge with the expectation of a pull back. A rounding bottom formation should indicate the removal of the hedge in its entirety while awaiting the commencement of a major rally.

It is evident that significant market correcting events occur infrequently, in the neighbourhood of every 10 to 15 years. Yet many minor corrections and pullbacks can seriously damage returns, fund performance and reputation.

If you have ever been confronted with upcoming quarterly earnings or a topping formation which has caused you to consider liquidation then you should have first considered a hedge used in conjunction with the evidence from a well thought out analysis of technical indicators. Together they are a powerful tool, but only for those who have the insight to consider asset protection as important as big returns. I guarantee your competition understands and so does your clients who are becoming more sophisticated each year. It’s important that you do too.