No Load Mutual Fund Advice

A mutual fund is an investing vehicle where a fund manager pools together money from several investors and invests it, usually in the stock market.  The investors then share in the gains or losses of these investments.  Why do people choose mutual funds over investing in the stock market?

1. It's less complicated than investing in stocks.  You can to purchase stocks from a broker, and coordinate with them when and if you sell, when to be notified of changes etc.  With a mutual fund, you defer these decisions to a professional financial investor.  In most firms, managers must have a proven track record, demonstrating their expertise and success in managing investments and financial advise
2. Its less expensive.  Buying stocks, you must pay a fee every time you buy or sell stock, and in many cases you must buy a minimum number of shares.  Mutual funds can be started with as little as $50 in many cases, and you can add to your fund with as little as $25 dollars.  The cost of buying and selling shares is much lower, and included as part of the management fee.  All the buying and selling of stocks is done transparently to you.
3. Diversification.  With mutual funds your $50 investment can be spread across hundreds of funds, if any one stock becomes worthless, you only lose the value of a portion of your investment.  By diversifying you spread your risk out instead.
4.  There is a fund for almost anything.  You can find funds that appeal to any investment style you prefer, International funds that capitalize on gains from abroad, Domestic funds that buy only US owned companies, Bond funds that invest only in very safe US govt bonds and treasury notes, Technology funds which invest in only leading technology companies, Green funds that invest in environmentally conscious companies, and the list ooes on.
   

Load funds are typically purchased through a financial adviser or broker. To simplify things, you can think of a load as a commission. Many funds can only be purchased through a broker. This is promoted as a selling point, but just like any other group of mutual funds there are good performers and poor ones.   A no load mutual fund only charges a 12b-1 management fee, which can be as low as .01% for an index fund (more on those later). There is no advantage to paying a load if you can avoid it. You may find a fund you truly like, and would not paying the load, but personally I do not see an advantage.  In my opinion the main reason most people invest in load mutual funds is that they think investing in the stock market as a daunting venture.  The truth is, it does not have to be.

First things first.  Before you invest in a mutual fund, make sure you have at least 3-6 months worth of income in savings for emergencies.  Mutual funds are a long term investment.  If you consistently need to take money out for car repairs or unexpected expenses then it's not the time for you to think about mutual funds.

There are a couple of market indexes that are well known, the Dow Jones Industrial Average and S&P 500 are a couple of the most influential.  Most years only a handful of funds beat this average.  So, if for the most part, these averages beat most funds, it's generally a good bet to invest in the same stocks that make up these indexes.  These are called "Index Funds".  They have to advantages that really like.

First - Very low management fees.  This makes perfect sense because there is no thought or analysis required to manage these funds, they simply mirror the index.

Second - It is very easy to track the progress of these funds.  I usually hear how the market fared on my drive to and from work.  No need for me to look up my funds, almost every newscast mentions how the Dow and S&P did that day.

When starting out, stick with a large, respected investment Company. 

• Vanguard Group
• American Funds
• Fidelity Funds
• Franklin Templeton Investments
• T. Rowe Price
• Oppenheimer Funds

Another advantage of dealing with a large fund company, is that if you wish to branch out to International Funds, or Bond Funds you can do so within the same company.

The secret to making money in mutual funds is called to use "Dollar Cost Averaging".   By buying funds on a regular basis, let's say monthly you increase  your ability to make money.  When the market drops, it's true your investment loses value, but at the same time, you are now buying more shares for less money.  In the long run, the peaks and valley of the stock market will work for you.  This is why I said that mutual funds are a long term investment

Once you are comfortable with buying mutual funds shares, and begin to feel a little more adventurous, you may want to try different types of funds.

Bond funds, there are several different types of funds so make sure you know which kind.  Businesses, State and local governments issue bonds as well as the federal government.  Federal bonds and Treasury Bills are considered the safest investment tools.  State bonds are normally very safe as well.  Municipal bonds are not quite as safe, depending on the municipality, but they carry certain tax advantages.

International funds.  Take advantage of the global market, there is a whole lot of business going on out there outside of the US, so don't be afraid to diversify. You can even target specific international markets such as energy, technology, manufacturing etc.