Mutual Funds
- Mutual Funds have become increasingly popular in the last 20 years, with the number of investors rising to 80 million people. This adds up to half the households in America owning mutual funds, with most having a basic knowledge on the matter.
A mutual fund is a group of stocks and/or bonds put together, to be invested in as one, and similarly to stocks, investors own shares, which signify a partial ownership on the fund.
Making Money off Mutual Funds
- Seeing as funds are a collection of stocks and bonds, investors tend to receive dividends on the stocks and interest on the bonds. Though it is not as direct as when investing in them, funds distribute these dividends and interests to the investors.
- In the case that the fund sells securities, at a profit, there is capital gain, which in most cases is paid out to investors.
- If the price of the fund increases, and it remains unsold by a fund manager, one can sell the mutual fund with a profit.
Advantages of Mutual Funds
- One of the main advantages of mutual funds, is that it is controlled by a team of professional investors and managers, thus attracting small investors, who don’t have the knowledge or time to build their investing portfolio.
- Mutual funds can be considered less risky than stocks and bonds, since one invests in numerous stocks/bonds at once, and a loss won’t have such a big impact as when investing in just one. This means that the more stocks one owns, the smaller the loss, as it can be minimized by the gains of others. Additionally, with mutual funds, one can invest in various industries, and therefore decreasing the chance of a great loss.
- Unlike individual transactions, mutual funds buy and sell great numbers of securities at once, and...
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...esting style or found a specific fund that interests them, one can buy them in numerous ways. Some mutual funds are offered to be bought directly through the fund companies. More commonly, funds are sold through financial institutions such as banks, financial planners, brokers and insurance agents. The drawback to this route of buying a mutual fund, is that one tends to be charged for the transaction fee and the service.
- To avoid these costs, one can buy funds through institutions or programs which don’t charge for the service. Commonly also known as “Fund supermarkets”, one can buy numerous types of funds from different companies. Among the most known examples of such programs are Fidelty’s FundsNetwork, Vanguard’s FundAcess and Schwab’s OneSource. Interestingly, though one can buy funds from a broker, many large-scale broker companies, offer similar programs.
Student Answer: Professional management and diversification are the major reasons investors purchase mutual funds, as well as they are easy to invest in for beginning investors or those who lack large amount of money as required by other types of investments. Investment companies are employed with experienced and profession fund managers who research and devote a lot of time to finding the perfect securities for their investment portfolios. The diversification allows for gains, even in a loss, because one investment in a mutual fund can offset the loss of another by it’s gains. Basically, your investments are scattered around and offer somewhat of a safety net for your
Mutual funds are investments that contains pools of individual stocks or bonds which are specifically chosen by a fund manager or team1. Exchange-traded funds or ETFs are offshoots of mutual funds that allow investors to trade index portfolios1. While ETFs maintain a lot of the characteristics of mutual funds – including the fact they are a pools of investments, have low costs, and have benefits such as the ability to achieve diversification and asset allocation – ETFs offer advantages that mutual funds cannot.
The first edition of A Random Walk Down Wall Street was written over forty years ago. Burton Malkiel’s first tip to investors in his preface is that “Investors would be far better off buying and holding an index fund than attempting to buy and sell individual securities or actively managed funds” (Malkiel, Page 17). You will learn that buying and holding all the stocks in a bond stock market average will most likely outperform professionally managed funds. I agree with Burton’s theory on this strategy. He uses an example on Page 17 showing how an initial investment of ten thousand dollars in an Index Fund would have a higher return than an investment of purchased shares of a managed fund. The author created this tenth edition of the book because there have been significant changes in the financial instruments that are available.
By Morningstar, Inc. concentrating more on mutual funds, rather than stocks and bonds would be a positive move for the business because they will be assisting more individual investors who are having a problem making a decision regarding how to invest (Ferrell, et al., 2016). Furthermore, mutual fund investments are the best investment for clients who are too busy to do their own investing in the market (Ferrell, et al., 2016).
During the decade of the 1990’s through the year 2001 there were some major shifts in the deployment of investment assets. Based on a variety of measures, mutual funds grew dramatically as vehicles for investing in portfolios of stock. Specifically net cash flows into equity funds grew from $13 billion in 1990 to $310 billion in the year 2000.1 During that same period the number of equity funds rose from 1,100 to 4,395, while the number of accounts in those funds increased from 22 million to 162 million. The cumulative effect of the new money injected into equity funds, together with reinvestment of dividends, plus the attendant stock price appreciation has produced a phenomenal growth in total net assets. The market value of those assets mushroomed from $239 billion in 1990 to $3,962 billion in 2000.
A Mutual Bond Fund is a fund primarily in bonds, as well as other debt instruments, issued by the government or other corporations. Most of these funds are designed to provide interest income for the shareholder.
Investment professionals emphasize the importance of including stocks in any individual long-term strategy because of their historically better performance compared with other investments and inflation. Most of the investors believe that stocks are “efficiently priced,” meaning that their prices reflect all relevant information, so that it is difficult to consistently outperform the market through active management. Therefore, a mutual fund that seeks to reflect the market rather than to beat it can be an easy and cost-effective way to gain broad equity exposure.
According to Investopedia (Asset Allocation Definition, 2013), asset allocation is an investment strategy that aims to balance risk and reward by distributing a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. There are three main asset classes: equities, fixed-income, cash and cash equivalents; but they all have different levels of risk and return. A prudent investor should be careful in allocating each asset class to his portfolio. Proper asset allocation is a highly debatable subject and is not designed equally for everybody, but is rather based on the desires and needs of the individual investor. This paper discusses the importance of asset allocation, the differences and the proper diversification within the portfolio.
According to Bing Liang (1998) Hedge fund is private investment partnership in which the general partners make a substantial personal investment. The general partner’s offering memorandum usually allowed for the fund to take long or short position, use leverage and derivatives, invest is concentrated portfolio and move quickly between different market. Hedge fund often takes large risk on speculative strategies, including program trading, short sale, swap and arbitrage. Hedge fund is lightly regulated active investment vehicles with great trading flexibility. They are believed to pursue highly sophisticated investment strategies and promise to deliver returns to their investors that are unaffected by the vagaries of financial markets. The assets managed by hedge funds have grown substantially over the past decade, increasingly driven by portfolio allocations from institutional investors. According to Vikas Agarwal, Naveen D. Daniel and Narayan Y. Naik in recent years, the hedge fund industry has emerged as an alternative investment vehicle to the traditional mutual fund industry. It differs from the mutual fund industry in two important ways. First, hedge funds are much less regulated compared to mutual funds, with limited transparency and disclosure. Second, hedge funds charge performance-based incentive fees, which help align the interests of manager and investors. These differences have important implications for investment behavior of capital providers and the incentives of the hedge fund managers to deliver superior performance.
trends may be used to inform new investing decisions. The plans of the asset manager goes around his
Investing in financial markets can carry risk and long term adverse effects. When deciding to participate in financial markets, an investor must educate themselves in order to financial blunders. At the forefront of financial theory, Modern Portfolio Theory asses the maximum expected portfolio return for a given amount of portfolio risk. Within the framework of Modern Portfolio Theory, an optimal portfolio is constructed on the basis of asset allocation, diversification and rebalancing. In conjunction with diversification, asset allocation is the strategy of dividing a portfolio across various asset classes. Furthermore, optimal diversification involves holding multiple instruments that are not positively correlated. While diversification and asset allocation can improve returns, systematic and unsystematic risks remain inherent in investing. Introduced by Harry Markowitz in 1952, the concept of an efficient frontier identifies an optimal level of diversification and asset
For an organisation to rise fund, they usually tend to look at the stock market and capital market to do it so. This is two markets are usually seemed similar by the investors as they both contributes to the development of an economy. But there are significant difference between them. The capital market is a market that consist of stock market as well as the bond market. As a result, the capital market provides a long-standing finance using the debt capital and the equity capital. Capital markets divided into two sectors known as primary markets and secondary markets. The primary market is where securities are issued for the first time whereas the secondary market is where securities that have been already issued are traded among investors (Difference...
Mutual funds, as defined by the SEC, are companies that pool money from many investors and invest that money in stocks, bonds and other securities or assets. Because of this indirect path to investment, a mutual fund serves as a financial intermediary. Like most
As an investor with several types of securities, I am looking for long-term stability towards a retirement fund. The combination of several different stocks and mutual funds allows for the safety of the investments. By investing long-term in different accounts, I have the ability to gain more in the long-run with less risk of not lose all my savings on one investment.
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