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  1. Mutual funds are a good way for investors to build wealth but they aren’t completely risk free. With a mutual fund you get exposure to different industries without having to become an individual stock picker. But when it comes to mutual funds, not all of them end up being profitable. Choose the wrong one and you may face investment areas that erode your investment returns. With that mind, here are some mistakes to avoid when choosing a mutual fund for an investment. 1. Paying Too Much in Fees When it comes to mutual funds, investors are going to pay different fees depending on the fund they go with. Investors who don’t pay attention to fees could see their returns diminished as a result, even with a mutual fund. Some mutual funds pay brokers a commission for selling their product to investors. That commission, known as a front-end load can be up to 5% of invested assets and is usually charged upfront. A back-end load mutual fund is a fee you pay when you sell the fund. The longer you hold on to it the smaller the fee. A no-load fund has no commission associated with buying or selling the fund, and is often a good choice for mutual fund investors who want to minimize the fees they have to pay. 2. Chasing Past Performance For most people mutual funds could be a good way to build wealth but often investors will chase past performance in hopes of seeing the same returns. Far too often, investors will choose their mutual funds based on past performance without giving much thought to what the fund invests in and whether or not the exposure matches their risk tolerance and time horizon for investing. Sadly, past performance doesn’t mean future performance, and the fact that a fund did well one year or even over five years doesn’t mean it will continue to do so. While past performance can help narrow the playing field it shouldn’t be the only reason to choose a particular mutual fund. 3. Not Paying Attention to the Tax Implications Many investors will use take funds from their already taxed salaries and invest in mutual funds outside of non-retirement accounts, which could create a tax event if they are not careful. These tax events occur because if an investor chooses an actively managed mutual fund that has a high turnover rate, the investor could be on the hook for any gains. Typically, the mutual funds with higher turnover rates are going to generate more tax events of which investors have to be aware. Unfortunately, most mutual fund marketers would not tell you about this! 4. Holding the same investment via different mutual funds Many people think they can choose a mutual fund, invest in it and then forget about it without giving too much thought to the underlying investments in the fund. If you own only one mutual fund this may be acceptable, but if you have your investments spread out over different funds to get diversification then you are going to have to do some homework. You don’t want to hold the same investments in multiple mutual funds. The whole idea is to be diversified in different asset classes and industries, and if your mutual funds all hold the same stocks and/or bonds, then you aren’t diversified. A possible outcome is that if the market goes down, you are going to be positioned for a bigger blow without having your investments spread out.
  2. onomewrites

    INVESTOR SHARES

    What are 'Investor Shares' Investor shares are mutual fund shares structured for investment by individual investors. Investor shares are most commonly offered in open-end mutual funds. BREAKING DOWN 'Investor Shares' Investor shares are one share class available for investment by individual investors in open-end mutual funds. Management investment companies structure open-end mutual funds with multiple share classes and fee levels. Investor shares may also be managed individually in a focused investment fund. Share Classes Any share class available for investment by individual investors can be considered an investor share. Open-end mutual funds can offer a wide range of share classes to different types of investors. Share classes can include A- shares, B-shares, C-shares, R-shares for retirement investing, Z-shares, for employee investment, institutional shares for institutional investors and more. Since open-end mutual funds are pooled investment structures, all of the share class investments in the fund are pooled and managed by the portfolio managers. However, management companies structure each share class offering to have its own fees and sales loads. Fees and Commissions Investor share classes often have the highest expense ratios. They are also typically structured with sales loads also known as commission charges that are paid to intermediary brokers for trades. Management companies partner with intermediaries and distributors to sell investor share classes. These partnerships are usually what cause fees and sales loads to be higher for investor shares in comparison to other share classes in the fund. Investor share classes transacted with full-service brokers will usually have front-end or back - end sales loads. The sales loads for all share classes are detailed in the fund’s prospectus. Each sales load is expressed as a percentage of the investment. Sales loads are charged to the investor and are not part of the fund’s expenses. Investor share class expenses also usually include a 12b-1 fee. This fee is paid from the fund to its distribution network. The 12b-1 fee provides compensation to intermediaries and distributors supporting the overall distribution of the fund. Distribution partnerships are most common in investor share classes. Typically, other shares of the fund such as institutional shares, retirement shares and Z-shares do not involve sales loads. Minimum Investments The minimum investment is also another factor that distinguishes investor shares from institutional shares and other shares in the fund. Minimum investments can vary broadly for funds across different platforms. What is a 'Class of Shares' A class of shares is a type of listed company stock that is differentiated by the level of voting rights shareholders receive. For example, a listed company might have two share classes, or classes of stock, designated as Class A and Class B. Owners of companies that have been privately owned and go public often create class A and B share structures with different voting rights in order to maintain control and/or to make the company a more difficult target for a takeover. BREAKING DOWN 'Class of Shares' Class of shares can also refer to the different share classes that exist for load mutual fund. There are three share classes (Class A, Class B and Class C) which carry different sales charges, 12b-1 fees and operating expense structures. Whether referring to different share classes of a company's stock or the multiple share classes offered by advisor-sold mutual funds, both cases refer to different rights and costs owned by holders of each share class. Mutual Fund Share Classes Advisor-sold mutual funds can have different shares classes with each class owning a unique sales charge and fee structure. Class-A mutual fund shares charge a front-end load, have lower 12b-1 fees and a below-average level of operating expenses. Class-B mutual fund shares charge a back-end load and have higher 12b-1 and operating expenses. Class-C mutual fund shares are considered level-load - there's no front-end load but a low back-end load applies, as do 12b-1 fees and relatively higher operating expenses. The back-end load, known as a contingent deferred sales charge (CDSC) may be reduced or eliminated depending on how long shares have been held. Class-B shares typically have a CDSC that disappears in as little as one year from the date of purchase. Class-C shares often start with a higher CDSC that only fully goes away after a period of 5-10 years. Preferred Class of Shares Investors sometimes opt for an investment in preferred shares, which function as a cross between common stock and fixed income investments. Like common shares, preferred stock has no maturity date, represents ownership in the company and is carried as equity on the company's balance sheet. In comparison to a bond, preferred stock offers a fixed distribution rate, no voting rights and a par value. Preferred shares also rank above common shares in a company's capital structure. Therefore, companies must pay dividends on preferred shares before they pay dividends for classes of common shares. In the event of liquidation or bankruptcy, preferred shareholders will also receive their payment before holders of common stock.
  3. Diversification simply put, is just putting your investment in multiple stocks, assets, sectors that have no similar value added relationship to help you reduce risk of losing investment money. A diversified investment is a portfolio investment in multiple stocks, assets or sectors that have no correlation with one another that help you reduce the risk of losses. Have you come across the quote “Don’t put all of your eggs in one Basket”, pretty familiar right? It is apt to your role as an investor who wants to mitigate loses. For example, Mr David, as an investor, wants to diversify his investments. So rather than invest only in tech/communications, in order to reduce the chances of losing, he diversifies and invests in oil firms’ stocks, government bonds, and banks stocks, not still confident of his investment, he goes into commodities, agriculture and other areas of business to invest till he feels he’s running with minimal risk of losing all his investments. You see Mr David having channelled his investment on different sectors is safer because if there’s a crisis in the tech world and all the tech industry crashes, he’s got investment in oil, government, banks and way down to agriculture. The key priority of diversification is reducing risk of loss. Diversification can't protect investors entirely from risk. Sometimes, financial markets lose value at the same time, and nearly every stock, bond, or fund loses value. More often, though, a diversified portfolio will cushion the blow of a downturn and help you avoid the full consequences of making an unfortunate stock selection. There's also little chance that the entire portfolio will be wiped out by any single event. That's why a diversified portfolio is your best defence against a financial crisis. Although, diversification can help an investor manage risk and reduce the volatility of an asset's price movements. Remember, however, that no matter how diversified your portfolio is, risk can never be eliminated completely. It is never a bad idea to keep a portion of your invested assets in cash or short-term money-market securities in case of an emergency because short-term money-market securities can be liquidated instantly. In general, the more risk you are willing to take, the greater the potential return on your investment, remember, the higher the risk, the higher the returns and vice versa. Investors will usually go for bonds and stocks creating different assets allocation portfolio. Usually, an aggressive investor would go for 80% stock and 20% bonds while the conservative investors go for 20% stock, 80% bonds. With stocks, investors can choose a specific style, such as focusing on large, mid or small capitalization. Bonds also offer opportunities for diversification. Investors can choose long-term or short-term issues. They can also select high-yield or municipal bonds. While stocks and bonds represent the traditional tools for portfolio construction, a host of alternative investments provide the opportunity for further diversification. These include Real estate investment trusts, hedge funds, Fixed Deposit, Commodities, and Treasury Bills etc. Regardless of your intention, there is no generic diversification model that will meet the needs of every investor. Your personal time horizon, risk tolerance, investment goals, financial means and level of investment experience will play a large role in dictating your investment mix. You can build your own diversified portfolio by combining numbers of individual stocks, bonds, or other investments. In general, buying stocks that differ in size, industry, geography, and corporate strategy can give you more of the benefits of diversification. Focusing on similar stocks in the same sector adds minimal diversification to a portfolio. Start by figuring out the mix of stocks, bonds and cash that will be required to meet your needs. From there, determine exactly which investments to use in completing the mix, substituting traditional assets for alternatives as needed. However, if you are too overwhelmed by the choices or simply prefer to delegate, there are plenty financial services professionals available to assist you, usually, at a fee.
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