Tuesday, November 17, 2009

Tuesday Night Finance

Tuesday Night Finances

Welcome to another installment of MFJ’s Financial Guidance. I know when I hear the words “mutual funds” or “stock options,” my brain automatically shuts down. I start to picture unicorns and half priced designer shoes and sweet sweet black patent leather. My little girl brain just will have no space for anything logical or financial. *sigh* So for anyone who is a little (or a lot) like me, this is your redhead-proof guide to mutual funds. Hooray.

Good question. A mutual fund is a collection of money used to invest in a bigger operation. That operation could be a stock, bonds, short-term money market or other “securities.” Then at the end of the year the investors are distributed the net proceeds or losses.

Its an easy was to invest and make money without having to do a lot of work yourself or put up a lot of cash to start. However, you need to be wary of additional fees that are included when you start investing in mutual funds. Some of those fees may be: Management Fees, Non-management fees, 12b-1/Non-12b-1 service fees, Investor fees and expenses, and Brokerage commissions. *The common rule of thumb when deciding whether or not you need a mutual fund manager is that unless your fund is making over 2% on every 10,000 you have invested, you’re paying your manager too much for something you could be doing on your own.


Open Ended- which means that the fund does not have limitations on how many investors there can be. They will also buy back share from investors who want to sell.

Exchange-Traded Funds- the ETfs combine the characteristics of both a mutual fund and a closed –end fund. They are traded daily on the stock-exchange and are usually sold to investors in large blocks (usually 50,000) and tend to have lower expenses than the traditional closed-end fund.

Equity Fund – are the most common of the mutual funds and consist mostly of stock investments. These are also known as stock funds and essentially exist to have a long term growth through capital gains.

Bond Funds – these mutual funds have a set time before they mature. They usually have a lower return than other mutual funds, but they also have a lower risk and have tax advantages. There are also high yield bonds that have the potential to make more money than a regular bond, but also have a higher risk.

Money Market Funds – MMFs have the lowest amount of risk to invest in are required by the government to only invest in low-risk securities.

Hedge Funds – are a private higher risk investment usually limited to a certain number of people and investors are required to keep their money in the account for at least a year (making Hedge Funds illiquid).


Know these terms.

Net Asset Value: At the end of the trading day each fund’s value is determined, less the fund’s liabilities and are then expressed in a “per-share” amount…that’s the Net Asset Value.

Average Annual Return:
There’s a formula ladies for finding out the average annual return on your fund. And its pretty easy even if you’re not a math genius (such as myself).

P(1+T)ⁿ= ERV

P= a hypothetical initial payment of $1,000
T = average annual total return
n= number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of a 1-,5-, or 10- year period.

Tell that to a stockbroker and he’ll think he’s met the woman of his dreams. Haha

When deciding on a particular fund ask to see these items:

The Prospectus
The Statement of Additional Information
The Annual Report

Check out these websites for further advice

1 comment:

  1. my little girl brain is kicking in big time.

    thank you for the info!!! i hope i can process. ahaha love you!