Financial

Mutual Fund Basics

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If you are considering investing in the stock market in one way, shape, form, or fashion you’ve probably heard the term “mutual fund.” If you are like I was, you probably have no real clue as to what the term actually means in terms of financial benefits or even exactly what a mutual fund is. Hopefully, reading this will clear up a few of the details for you so that you can move on to make informed decisions about where and how to invest your money.

I should begin by pointing out that there really is no method for investing that is completely without risk. That being said, mutual funds have lower risks that many other investment options, which makes them an attractive purchase for those that are unsure about investing. In fact, for the purpose of savings, mutual funds often have much better rates of return than the average savings account at your local bank and the risks are minimal in this type of investment, particularly compared to other riskier ventures.

So back to basics, mutual funds are, simply put, a collection of stocks and bonds that are owned by a group of people rather than one individual investor. This accomplishes a few things. First of all, it allows investors to buy in with considerably less money than it would take to purchase the same ‘portfolio’ on their own and it spreads the damage out among a group of people should something go wrong. In addition, because it isn’t one single stock or bond or generally even one sector of the stock market, the risks for a complete and total loss are reduced to some degree. Keep in mind however that the market does simply have bad days on occasion and there is little that can be done about that short of stuffing your money under your mattress and it certainly won’t grow there.

There are plenty of advantages and disadvantages in regard to purchasing mutual funds. You won’t find the flashy swings, dips, dives, and other grand maneuvers in the typical mutual funds. Most mutual funds are selected because of their stability not for in hopes of massive profits though some mutual funds are, admittedly, more aggressive than others. It really depends on how much of a gambler you are by nature and how much of your investment and retirement you are willing to risk whether or not you will be satisfied with mutual funds as part or all of your investment portfolio.

Diversification is one of the key ingredients of a healthy portfolio and mutual funds will help you work the diversity you need into your portfolio in short order. If you are young and just beginning your career and in no real hurry for retirement this is one of the safest ways to invest your money for the long haul. Unfortunately it may lead to a comfortable retirement but is unlikely to lead to a flashy retirement, as most mutual funds do not have the high payoffs that many investors seek.

There are essentially three types of mutual funds with a few variations on each.

First there are money market funds. These funds are great for the long-term investor who has a slow and steady approach to investing and will generally be better than leaving your money in a savings account collecting interest but there are better earning funds to be found.

Second are the equity funds. These funds provide slow growth over time as well as some income along the way.

Finally there are the fixed income funds. The purpose of these funds is to provide a current income over time. These are not funds that are anticipated to increase in value only to maintain a certain standard of living. This is great for those who have retired or investors that are extremely conservative in nature.

Hopefully this finds you knowing a little more about mutual funds in general and preparing to learn even more about how to take control of your investment options and make these key decisions for your future and that of your family.

Are You Ready to Invest?

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We grew up in world in which the news about the failure of Social Security is almost as constant as the news about the failure HMOs. We all know that it is unlikely that many people who are currently contributing to social security will ever see the money we’ve invested into the program. At least these funds are probably not coming back to darken our doors. This means we need to find alternatives and end our reliance on the government for a comfortable retirement that doesn’t appear to be in the woodworks.

For this reason, we are seeing more and more people in the twenty and thirty something generation taking matters into their own hands and investing not only for their retirements and the days when we can no longer work but also for those days when things happen and we need to fix broken houses, buy new cars, or pay hefty insurance deductibles for medical care. There are many reasons we choose to invest and very few that would ever be considered the wrong reason. The question remains, because there are so many out there who are not yet investing, with so many reasons to invest, are you ready to invest?

Here are a few situations in which if you don’t think you are ready to invest you may need to revisit your opinions and decide that ready or not, you need to invest.

If you have children and a job that doesn’t offer a pension plan or matching retirement fund, then it is probably a good idea to invest on your own. Even if you don’t have corporate provisions for contributions you have alternatives such as Roth IRAs that will give you a tax break for investing some of your money and helping to plan for your own retirement.

If you have children that will someday need dental work, medical services, and/or college educations it is about time that you began those savings plans. Yet again there are tax deferred and tax fee options that are available and having this money invested ahead of time can save you so much money later on that it is worth making a few sacrifices along the way to secure the future of your children.

If you want to give your daughter the wedding of her dreams then you absolutely need to begin preparing, saving, planning, and investing about 10 years before she’s born. Weddings are expensive and if you are going to go the dream wedding route you need to be saving some serious money in order to give her that fairy tale.

Finally, if you want your retirement to be a nice comfortable existence and not to be spent in your future daughter-in-law’s broom closet you need to be ready today to begin investing in your future retirement. Time is short, life expectancies are longer than ever, and the costs of living are continuing to rise at alarming rates. If you’re not ready to invest you need to figure out why and fix the problem so that you can be ready to invest and soon.

Investing in your financial future is the greatest gift you can give yourself by far. If you aren’t sure where to begin or how, perhaps it’s time to seek the services of a qualified financial advisor. His advice may prove invaluable and may give you a much more comfortable future than you would have ever imagined left to your own devices.

Is Zero Percent for Real?

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The desire to climb out of credit card debt is universal for anyone who is fighting this big problem. And it isn’t an isolated problem. More and more people are having big problems with credit debt especially in these times when you just about have to use credit every day.

There is something a little strange then about credit card companies coming in with offers to help you climb out of credit card debt when its they that are the problem in the first place. It’s almost like a drug pusher pushing a new drug that can get you off drugs but the drug he is pushing is just as addictive as the last one. But when you get offers for new credit cards each month, they often are pushing plans to help you get out of debt by going into debt to them.

Probably the offer that comes in that is most difficult to overlook are the offers to let you do a balance transfer of some of your debt and pay no interest on it. These are often called zero percent offers and they have skilled marketing people write the copy for these offers so you are prone to believe that you really are going to be able to have a loan paying no interest so you can just pay off the principle and that’s that.

Are these zero percent credit card balance transfer offers for real? Well, they are in the sense that they might transfer some of the funds and yes, the interest rate you will see on the first statement will be zero percent. But, like all things, there are catches and things to look out for. You have to remember that the credit card companies are entirely in the business of collecting interest. They don’t do anything else. They offer no value to society, build no roads or hospitals, sell no food or medicine, make no TV shows to make you laugh. They sit there, house your debt, collect interest and try to talk you into running up more debt.

When you get a zero percent offer, they plan on recovering the lost money from the time they support your debt, and you pay no interest. One way they do that is with a transfer fee. They will almost always charge you a 3-5% balance transfer fee with a minimum and sometimes a maximum value. Read the fine print carefully to make sure you understand how much this is going to be and that you agree to it. But be aware that the transfer fee is nothing more than disguised interest. So calculate that against the interest you would have paid leaving the debt where it is sitting now before you cash in on a zero percent balance transfer.

You will rarely see a zero percent balance transfer that is not for a very limited time frame, usually no more than three to six months, sometimes up to 18-months. With the transfer fee factored in, you have to wonder if the effort of moving the money was worth it. And at the end of the introductory period, they are going to raise your interest rate to something that they, the credit card company want it to be. Be absolutely sure you know what that interest rate is going to be and that they live up to that stated level of interest. If you enjoy that zero percent transfer for three months and then face years at 21% interest, you did not win in that transaction, the credit card company won.

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