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.
WHAT THE HELL IS A MUTUAL FUND?
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.
WHY SHOULD I INVENST IN A MUTUAL FUND?
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.
TYPES OF MUTUAL FUNDS
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).
WANNA SOUND SMART???
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
Wherein:
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
OTHER TIPS/ADVICE
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
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.
WHAT THE HELL IS A MUTUAL FUND?
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.
WHY SHOULD I INVENST IN A MUTUAL FUND?
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.
TYPES OF MUTUAL FUNDS
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).
WANNA SOUND SMART???
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
Wherein:
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
OTHER TIPS/ADVICE
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
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my little girl brain is kicking in big time.
ReplyDeletethank you for the info!!! i hope i can process. ahaha love you!