Although Mutual Funds are constantly evaluated on a fund’s performance, such evaluations are based on how a fund manager performs as compared to a market benchmark (such as the S&P 500), or to another fund. Such analysis is actually an evaluation of the manager’s performance in the market. Great companies, such as MorningStar, have evolved reporting on just such analysis. But this is not the Risk of Fund Management.

The Risk of Fund Management involves events that are not necessarily analyzed, but still occur. The change in a Fund’s manager (for whatever reason), the “group think” (positive or negative) that may develop at the company operating the Mutual Fund, or the acquisition of a Fund by a larger Fund Company. In any event, there will be changes that occur. Often quick, these changes expose the investor to risk beyond just investing in the market.

In most situations, the change will be minor. A new regulation enforced in the industry would affect all. But how it is placed in service may be different for each company or for that matter for each Fund. Also, new company rules that a Fund company puts in place may impact how a Fund’s decides to buy or sell certain stocks, or how these decisions are processed can also have an impact. But one of the biggest adjustments is a change in the person or group that is running the Fund. As you can understand that two people don’t invest the same way, a change in a Fund Manager also means a change in the style of investing conducted by the Fund. Usually the adjustment period for such changes is about a month or maybe two. For the most part, if the changes were not announced to investors, most would not even know. However there are times when these changes do have a substantial impact on the Fund, and the direction that it will eventually pursue.

It is these types of changes that expose you to Management Risk. Unfortunately, being diversified in the market by owning Mutual Funds will not eliminate these types of risks. The risk comes with owning these types of investments. And having a large holding of your investable money in a fund during a transformation may result in a loss of significant portion of your money in the event the Mutual Fund experiences losses during its transformation.

So how do you protect yourself from such risk? Oddly, the answer is diversification. This time, not in just the stocks owned, but in the mutual funds owned. Buy several different mutual funds, preferably ones from different Mutual Fund companies. There are many Mutual Fund Companies out there. Fidelity, American Funds, Vanguard, Barclays, Franklin Templeton, Pimco, T. Rowe Price, State Street, Oppenheimer, Dodge & Cox, Putnum, Janus, BlackRock, Dimensional, JPMorgan, Van Kampen, Dreyfus, John Hancock, and Charles Schwab are just a few of the bigger, well-known names. There are countless other smaller funds, that perform just as good, and may even provide as good, if not better, service.

Second, each mutual fund has a particular style of investing. Some are growth oriented, some are value oriented. Some may invest in particular sector of the investing community, while others concentrate on location (region of the world) of the industry. Some seek income producing equities, while others prefer an increase in share value of the investments. And there also exists blends of each of these styles. Regardless, you would best be served by buying a variety of mutual funds, with different types of styles.

Third, the size of the mutual fund is also important. The general rule is the bigger the fund, the more stable it is. This is not always the case, but is generally true. However, the larger the fund, the less return on the investment may be encountered. It would benefit you to have a variety of big, medium and small size mutual funds. You may want to consider, that for each three mutual funds you select, you may want to pick on big fund, one medium size fund, and one small fund.

Keep in mind, that any portfolio you develop, no single investment should constitute a majority of your holdings. If you own 4 mutual funds, then no single investment should be over 50% of your portfolio. If you own 5 mutual funds, then no single investment should exceed 40% of your portfolio. A simple guide that may help is to take the number of different investments you currently have in your portfolio, divide it into 100, then double that number. An example would be say you have 8 different investments. Divide 8 into 100, which gives you 12.5. Then doubling it will give you 25. This is the upper limit for the size of the holdings as a percentage of your portfolio. In other words, no single investment, in your 8 investment portfolio, should exceed 25% of your holdings in that portfolio. If such is the case, then consider selling portions of the large holdings until the investment approaches the 12.5% of your portfolio. This is often called Portfolio Rebalancing. But in reality it is taking the profits of a successful investment and hopefully buying more successful investments for the future.

Ideally, a great portfolio has about 8 to 15 different investments, or more likely about 10 to 12 investments. Usually, more than 15, and an investor does not have the time necessary to follow up on each investment. A portfolio with less than 8 different investments may raise concerns of less than adequate diversification.

Also to ensure you are not blindsided by poor performance. Check your portfolio at least once a month. More frequent if possible. Since changes like those mentioned above usually occur in periods lasting only about 3 months or less, checking only once a quarter may not be adequate to detect performance issues before it is too late. Don’t let that happen to you.

Protect yourself and your investments. Diversify your portfolio, whether stocks, bonds, mutual funds, or other investments. Rebalance when you determine appropriate. And don’t worry, if you have a good investment, it will continue to perform for you. However, if the investment encounters a turn, such as Management Risk, you could save yourself a lot of heartache by spreading the investment money around.

Peter Messina is a member of The Internet Stock Exchange Investment Club. Feel free to check The Club out at it’s website www.worldstockexchange.com.

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Mutual funds have several advantages that made them one of the most frequent types of investments. One of their benefits is that they enable you to invest in many different companies and sectors at the same time which wouldn’t be possible without a large amount of money.

Investing your money in several companies or sectors is called diversification. This is an excellent strategy to reduce the risk of an investment given that only a small portion of your portfolio is affected when a few companies in the fund perform poorly. A stock mutual fund can consist of hundreds or thousands of different stocks. An investor who puts all his money in one investment can lose his whole asset when that company goes bankrupt or performs badly.

Another advantage of these funds is that they take away much worrying on the part of the investor. By investing in a mutual fund you hand over the money management to a trained professional manager who does it for you. His expertise in financials reduces the risk of picking the wrong investment decisions. And due to the combined fees that the investors of the fund have paid to the fund manager he has much more money than the average investor to research investments thoroughly.

Unlike stocks, the prices of mutual funds generally don’t change a lot. Although the orders to buy and sell are placed during market hours, they are not implemented until the business closes which happens only once a day. At the time of closure the Net Asset Value (NAV) of the fund’s new price is determined.

Similarly with other types of investments, mutual funds also have their disadvantages. You should do your research carefully and make sure you are willing to take the risks associated with the fund. There are thousands of different kinds of funds which all have their own characteristics such as fees and commissions. It is important to be familiar with the overall performance of the fund and how diverse its structure is. Ensure before investing that you have enough confidence to invest in the fund and the fund manager.

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As with any type of investment, there are drawbacks associated with mutual funds. By investing in them you will pay fees that do not commonly take place when you would buy the separate securities directly by yourself.

Other costs can consist of operating expenses, redemption fees and sales commissions. Different funds have diverse costs and fees so it is important to put some time in researching and comparing them before you start investing. “Net” returns are one of the key points to look up when comparing the performance of mutual funds. This is the true return on investment for an investor after all the costs have been deducted.

Although you hand over your money to an experienced manager, there is no guarantee that you will make profit on your investment. Its value could even fall and become less worth than the initially invested money if the fund doesn’t perform well. This is also an important reason to watch the performance of the fund you are planning to invest in.

Investing in a mutual fund allows you to diversify your investment. This is generally considered a good trait given that your investment risk is lowered since your fund won’t be affected to a great extent by a few bad performing securities. However, diversification can also backfire on you and hold you back from soaring profits. If a particular stock performs very well in the fund, the value of your investment won’t increase considerably.

Buying mutual funds is an easy, stress-free way to invest your money. They have several benefits such as lowering your investment risk by diversification, handing over your money to a money manager who invests for you and that their prices usually don’t fluctuate as much compared to stocks. But similar to other types of investments there are several disadvantages of mutual funds. Prepare well before making the decision to invest in a fund and make sure that the benefits of the investment outweigh the disadvantages.

To learn much more about disadvantages of mutual funds, visit http://www.startbeginninginvesting.com where you’ll find this and much more, including stock market lessons, tips and recommendations.

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When you decide to invest in mutual funds, do it correctly – you must perform two levels of due diligence…one should be performed on the managers themselves…the other should be performed on the shares selected for inclusion in the mutual fund. Skipping either of these crucial steps can be a big mistake you will come to regret.

While it always takes time to perform proper due diligence, it is easier in the digital age. Google your prospective fund company and look for client reviews and other topical information. Check the BBB and see if these financial advisors are on the up and up. Once you’re confident that the administrators of your fund are honest and aboveboard, you must also make sure the stocks they choose have a proven track record, or (at the very least) some strong indicators of future growth.

Due diligence is simpler when you learn how to compare publicly traded companies that offer stocks. Look for companies that belong in the same sector (such as healthcare, energy, or communications), then compare their stock market share prices over the short and long terms. Learning how to compare competitors is a valuable skill that will always help you as you begin to trade in mutual funds or other investment vehicles. Once you’ve completed a comparison of companies in the same sector, match your potential investment stock with stocks in other sectors – how does it compare overall? When you’ve completed these steps, you’ll have the in-depth understanding you need to make a firm decision about mutual funds investment.

Remember, past performance is not always an indicator of future success…many industry sectors are cyclical, and therefore very prone to changes brought about by a series of variables. For example, a fantastic high-tech company may be brought to its knees if an earthquake or flood strikes its main headquarters, wiping out tons of inventory. This is an extreme example, meant to illustrate the changeability of stock market investments. This is why playing the stock market or buying mutual funds will always have a risk element. The best way to cope with uncertainty is through thorough research, and through controlled investments that don’t risk too much of your savings or disposable income. Be smart and use every tool at your disposal to analyze a mutual fund before you decide to buy in. Then, monitor your investment closely – once a year updates from your investment firm may not be enough.

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For an online purchase of mutual funds, an investor needs to set up an account, typically they can download the application forms and then scan these back to the fund platform management team, they would be investor also has to mail the hard copy to fulfill anti money laundering requirements. Once the account holder has submitted the correct documents the account goes live. The client then starts the investment process by transferring money from his personal account to the new fund manager’s bank; subsequently the investor can select the exact fund he wishes to purchase.

After the first purchase of funds online the investor is free to make future investments to the new fund manager’s bank and then proceed to select other purchases without further need to provide proof of address.

Each mutual fund has a prospectus; we suggest investors should read the prospectus carefully and if possible, download information that may be paramount for future references and transactions. An investor is advised to use the online search facility to look at past performance of a mutual fund, if any, and the aims or objectives of the fund. Then compare to other funds in a similar market sector. This should provide a solid base of information to enable an informed decision on whether to purchase online or to wait until market conditions change.

The investor has the option of deciding how the investment will be made in order to purchase the fund. The investment can be done one-time or if they wish to buy at several different market rates they may choose to build the holding over a few months.

Apart from the research facilities and the option to track funds and set email alerts there are some hidden benefits to buying online. There is no hassle involved in having to visit third parties to buy the stock; this saves both time and inconvenience. Just a few mouse clicks on the web provides access to all information and opportunities and the shopping basket for purchase. These days an investor does not to incur an extra cost in hiring a broker to enable them to attain their investment dream because websites offer all the tools to do the job in your own good time. Another significant benefit of setting up an online mutual fund account is the ability of the long term investor to retain direct control over their mutual fund investments, they can login whenever they choose and immediate see the best performers over any specific period and also look for the newcomers that could be the future star performers.

Buying mutual funds via online platforms now accounts for billions of dollars in business, the vast choice, discounted entry fees and simplicity are just some of the numerous benefits of investing via the internet.

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Experts say that investors make bad fund decisions based primarily on emotional reasons. No one likes to admit that after hours of research and possibly thousands of dollars lost, that a mistake has been made. Plus, money managers are always saying that mutual funds are meant for the long-term and to not let the interim ups and downs of the market shake your confidence. So, with just these two things combined, it must mean that you should never sell off your mutual fund, right?

No, actually, this never-sell mindset is all wrong. Before making your initial investment in a mutual fund, you need to specifically take pen to paper and write out your objectives for the investing in this particular fund. When the fund can no longer meet the criteria, you should cut your losses and move onto the next investment. Now, this doesn’t mean that you should be a fair-weather investor, only satisfied when things are looking up and skies are blue. Often, your mutual fund will take a hit, but this doesn’t necessarily mean that you make an immediate divorce from it. Instead, you monitor your fund over the course of a self-set, pre-defined period, never just a quarter or a single year but perhaps several, to see if performance is turning around.

Nearly every fund is going to have a down year and it’s inevitable to always stay on top when the market environment or fund management changes dramatically. But resist the temptation to bail out and sell low – you’ll just end up buying high later and that’s not a wise or profitable cycle to get caught up in. However, if the years march on and your fund is still tanking or the fund managers have decided to switch up their investing philosophy, it may be completely reasonable to sell your shares and make another investment that better addresses the long term goals of your portfolio.

Todd Denning

Lean Investor

Strategy, suggestions, and solid advice for today’s no-nonsense investor

http://www.leaninvestor.com/

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1. Funds are pooled with other investors. This is the key to mutual funds which are in fact managed funds. The professional managers invest the pooled funds on behalf of investors. Rather than buying a number of shares as when investing in stocks your money purchases a number of units. In this way small sums of money can be invested in a number of different assets, giving you diversification without the need for large sum of money.
2. Professionally managed. As already noted the funds are professionally managed by people who are trained in the area of investing. They have the resources and skills to manage your funds on your behalf. This is the manager’s job so they are working daily leaving you to concentrate on things that you enjoy doing. They have constant contact with the markets. This does not mean that all fund-mangers are the best but there are things you can do to check how respected the funds and the managers are through research houses such as Morningstar. Your financial adviser can also help you here.Read the prospectus of the company to find out how disciplined the company is and how it adheres to the strategy that it states.
3. A prospectus is available. A prospectus is a legal document that is approved by the country’s Security Commission and shows areas that the mutual fund is allowed to invest in, such as shares and bonds. It provides details of all financial matters relating to the investment option. In New Zealand, apart from the prospectus, you must be supplied with an Investment Statement which has certain questions answered in plain terms rather than investment jargon.
4. Most funds are administered by a board of directors and many have trustees who oversee the management of the funds, making sure they are appropriately managed and invested in terms of the investment strategies of the funds. The funds are subject to specific regulatory, accounting and tax rules.
5. The funds’ investment objectives define the type of securities in which the fund will invest. There are a range of different types of funds and these can be listed equities or stocks, bonds or fixed interest, cash or money markets. There can be a combination of all asset classes as well, providing true diversification for investors.

Lyn Bell has been in the finance industry for more than 30 years and is a Certified Financial Planner. She has helped many clients achieve their financial goals. Sign up to get Lyn’s free newsletter SoundFinance News and receive a free gift.

Please note this article does not contain specific advice and is for information/education purposes.

A disclosure statement is available free on request.

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The fund basically, is a corporation with the sole business of collecting and investing the money. You buy shares in the fund in order to be included in the pool. In return, your money will be invested by a team of professionals, who look for stocks, bonds or other assets and then invest the money as wisely as can be.

The team normally charges an annual fee of about 0.5% to 2.5% of assets – plus other expenses. That would mean a deduction of your total annual return. This is understandably the amount you pay in exchange of professional direction and instant diversification – this is the driving force of funds to reach 14,000.

Mutual funds can be categorized into two: load funds are those funds that impose a sales charge – cut or withdrawals of any new income attached to the fund; No-load funds are those that do not have sales charges at all.

There are also what you call open-end and close-end funds. Open-end funds normally sell shares to anyone who wants to buy; basically, they want to invest any new money that the public wishes to put into the fund. The price of the share is determined by the value of the underlying investments and is computed anew each night after the U.S. markets close. Closed-end funds issue a limited number of shares which are being traded on the stock exchange like stocks. The price of close-end fund share can go up or down the actual value of the underlying shares held within the portfolio.

Funds can also be classified according to their investment strategy. Below are brief descriptions of these classifications.

Index funds

Most of us are familiar with the long-term stock performance reports of the Dow Jones industrial average, the Standard and Poor’s 500-stock index, or MSCI World and other broad market indices. Briefly stated, funds based on S&P500 will never outperform the market. However, due to its low priced with $2 annual expense for every $1,000 investment as compared with $14 a year that the average stock charges – mutual funds outdo the great majority of actively managed funds over time.

Growth funds

This type of fund invests in company stocks with the potential for faster and bigger capital gains as compared to the overall market, but also drops faster if investors pulled out due to unimpressive predictions.

Value funds

Fund managers who tend to rely more on value, buy shares of undervalued companies. Sometimes, these are mature companies that pay out dividends to shareholders. Those investments that produce profits are also called equity-income or growth-and-income funds.

Sector funds

When funds are focused on a particular sector – for example, technology or finance, this type is referred to as sector and specialty funds. But, investing in this type of fund is risky since sectors are highly volatile in nature.

Others

Due to the overlapping nature of these fund types, there is a need to branch out in order to diversify. Aggressive growth funds, capital appreciation funds, small-cap funds, midcap funds, and emerging growth funds are the type of aggressive funds that provide diversification. But because these types are highly unstable, there are strategies that offer optimum results. One option is to invest it in small companies with modest earnings compared with larger ones but have more potential for gains (and losses). The next option is to invest in high-priced and high-growth stocks. Another is to invest in stocks in “hot” industries – for example health care or technology. Or, you may opt to invest in a number of companies.

International

There are funds that invest outside the country of residence which come in three different types. International funds, normally buy stocks in huge companies situated in stable regions such as Europe and the Pacific Rim. Global funds do similar activities but can also invest within the United States area. Emerging market funds buy stocks in high-risk regions such as Latin America, Eastern Europe and Asia.

Bond funds

Bond funds include term funds, which have either short, medium, or long-term fixed before its maturity. These types tend to separate high-risk bonds known as junk bonds and the safer ones known as Treasury securities; and those taxable bonds against those that are tax-free.

Be reminded of course, that when the market is going down, funds that invest in Treasuries might appreciate and investors herd to the safest investments available. It also holds true when things with the market gaining and during better times, funds invest in riskier bonds such as junk-bonds will also pay off.

Roland Hop is an expert in personal finance. He understands how important saving your time is these days, this is why he supports Financial Feed, Personal Finance as the site he can trust for financial news when time is most valuable to him.

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First of all the risk of investment is lower with these funds than with any other type of stock investment. The diversification of investment makes the risk minimum, and the funds needed to invest are also lowered to a minimum. With regular stocks you need to have $5,000 or more minimum investment, but with these funds you can invest a few hundred dollars.

Another great benefit when investing in funds is that your money is being handled by professionals that will invest in various stocks, bonds and other securities. And apart from having your money handled by professionals you have the right to withdraw your money at any time as mutual funds are considered to be liquid funds.

If you are just staring out with investing mutual funds are perfect for you as they will let you experiment and learn the curbs of investment. You can invest smaller amounts of money and try things out; there is no risk like with investing in a particular stock where you can lose a great deal of money.

If you want you can place your mutual fund investment on automatic disposal. This means that each month or each quarter you will add a preset amount of money to the mutual fund investment. Over time your money will grow much faster and you won’t even have to think about your savings.
These are great for anyone new to the market that wants to increase their savings with a minimum risk involved.

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Mutual funds are a great pool of money that was gathered from a great number of investors and later invested into stocks, real estate and bonds. No matter what amount of money you invest into funds you will receive a proportional share from the money invested. So if you are still considering funds as an option let’s go over some benefits of mutual funds and why you should invest in them.

First of all the risk is brought down to a minimum. If you gather a certain amount of money you will probably have enough to only invest in one kind of stock, while funds gather money from a great number of investors and lower the risk by investing in various instruments and stocks.

Also they are much easier to work with. When you invest money into stocks you will have hundreds or thousands of stocks to take care of, while you will have only one fund portfolio to deal with. A great benefit to mutual funds is that they are a liquid asset, which means you can withdraw your funds any time you wish. Also a great benefit of funds is that unlike regular stocks for which you would need to invest a minimum of $5,000 or more, you can invest only a few hundred dollars in mutual funds. You can invest as much as you like, there is no need to save up until you reach the bare minimum.

As you can see mutual funds are a great investment that doesn’t require much money to start with and they are absolutely safer than any other investment option on the market.

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