Retirement mutual funds, also sometimes called target-date mutual funds, were designed to provide a given amount of income at some specific future date. Often, they are structured to provide immediate diversification into stocks and bonds, in order to build rapid portfolio value. Later, as the member nears retirement age, they move into a more conservative investment blend.

Recent market turmoil and aggressive legislation have made retirement mutual funds more costly, particularly since the first quarter of 2009. Fund management fees have increased sharply, in compensation for decreased participation. Still, these funds are popular amongst middle-income investors with ten to twenty remaining years before they reach retirement age.

When these investment vehicles first became popular, many company managed retirement funds chose them, for their outstanding performance and relative flexibility. However, in the last couple of years, more and more companies are moving away from them, in favor of more conservative, self-managed funds.

Typically, retirement mutual funds will invest in equity investments, as long as the projected retirement age is ten years or more away. They will usually maintain around 2/3 domestic equity, and 1/3 foreign, as the fund creates capital gains. Most often, they’ll also carry a mix of investment in bonds, which will provide income with less fluctuation in price. As interest rates increase, the funds will sometimes convert more of their investment into cash, which will pay lower rates, but will be more stable than bonds.

As retirement age nears, the fund usually begins to be managed more conservatively, moving from equity into bonds and cash. This provides the stability necessary to maintain the necessary cash flow for the retiree.

Unless one is very familiar with investment markets, it is advisable that a fund manager is utilized; at least until a minimum comfort level is reached. The retirement mutual fund can be the difference between comfort and poverty in one’s retirement, but proper fund management is critical, and should not be undertaken by amateurs.

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You’ve decided that you’re ready to invest. You want to save for your retirement years. You want to make sure that you’re financially comfortable long after you’ve quit working.

This is a commendable goal. But now the real work begins: You have to decide in what investment vehicles to sink your money. Two worthwhile contenders for your dollars are mutual funds and Exchange Traded Funds. Both provide the diversification that is so important when investing. And neither ETFs or mutual funds come with exorbitant costs.

So which investment vehicle is best for you? That depends on your investing goals and your personal financial situation. But here are some basics about both mutual funds and ETFs to help you decide which makes the most sense for you.

When you’re putting your money into a mutual fund, you are often paying for a team of investment managers that decides which stock stocks to buy and which to sell. The hope, of course, is that the stocks in your fund perform well. These are considered safe investments because your money is spread out over a wide range of stocks.

ETFs work a bit differently. These funds track a specific index. Usually, a large company – often the same ones that run mutual funds – will create a grouping of stocks that represent a specific index, anything from the NASDAQ to the S&P500. These stocks are deposited with a holder, and the company behind the ETF receives a certain number of what are called creation units. These units are large blocks of shares that are eventually split up into the individual shares that are then traded on the market.

Which investment vehicle makes the most sense for you? That depends on what you’re looking for.

With mutual funds, you generally buy your shares and hold onto them for a long period of time. With ETFs, though, you can buy and sell as many times as you’d like. This can be exciting. It can also be risky. Just ask all those people who lost tons of money by day trading.

Mutual funds generally come with minimum payments for entry. You have to buy a certain amount of shares to participate, and for some funds this minimum isn’t tiny. But ETFs don’t require any minimums. In other words, you can buy as few shares as you’d like.

There is no right or wrong answer here. Both ETFs and mutual funds are generally considered to be strong investments. Their differences, in fact, aren’t all that significant. Before investing your dollars in either vehicle, though, make sure to do your homework. You can make solid money with either ETFs or mutual funds. Unfortunately, you can lose a lot of money with either investment vehicle, too.

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Equity mutual funds are professionally managed mutual funds that invest in stocks, with the objective of long term growth through capital gains, rather than strictly dividends (although dividends have historically been responsible for a good share of the long-term return). Typically, mutual funds specializing in equities focus either on a group of stocks in a particular risk group, or in a particular business sector. They are usually further specified as a large-cap, mid-cap or small-cap portfolio.

The demarcation between large, mid and small-cap varies somewhat from one fund manager to another, but they are roughly considered to be companies capitalized at greater than $5 billion, down to less than $500 million, with mid-cap filling the range in between. When it comes to picking the stocks for their portfolio, equity fund managers may use a value approach, a growth approach or a blend of the two.

• In the value approach, they look for companies that are undervalued on the market for their actual worth. These stocks often will increase in value when purchased in sufficient quantity, simply because of the implication of optimism from the actual purchasing.

• In the growth approach, the fund manager will look for stocks of companies that are growing faster than their competitors, or than the market itself. Rapidly growing, established companies are prime targets.

• Some managers prefer to blend their approach, seeking stocks with both value and growth profiles, thus affording a little more protection to their portfolio.

Equity mutual funds are investments that are typically held for prolonged periods, unless a downswing is detected. They offer no particular tax exemption when profitable, but if carefully selected, they can render sizeable returns. As with nearly all investment opportunities, risk and return are in inverse proportions. That is to say that low-risk funds will offer a lower potential return than a high risk fund. Unless one is well versed in stock trading, and has the time to monitor the market very aggressively, it is nearly always advisable to use a professional fund manager.

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Think you know exactly how much your mutual funds are costing you each year? Think again. The unfortunate truth is that many funds come packed with hidden mutual fund fees, fees that most consumers have no idea exist.

But you want to be an educated consumer, right? If that’s the case, you’ll take the extra time to compare mutual fund fees and find the hidden costs of your funds. And depending on how high these costs are, you might even move your dollars to funds that don’t have quite so many of these secret fees.

Mutual funds come with many upfront fees, fees that are freely advertised by your fund company. These include management and redemption fees. There’s nothing too mysterious about these fees.

But then there are the fees that are rather mysterious, the brokerage fees. Simply put, these are fees that investors are charged when their fund managers buy and sell securities. These fees are not included in the expense ratio that funds distribute to their investors.

This seems a bit fishy, but it’s how mutual funds have long conducted business. It does make it difficult, though, for those consumers who like to shop around to make sure that they are investing their money in mutual funds that charge the least amount of operating and management fees.

As one of these conscientious investors, how to you determine these costs? How do you make sure that you’re not paying too much in fees to your mutual fund?

You’ll have to read a document called the Statement of Additional Information. All mutual funds are required to have one of these. It lists the transaction costs – all of them – that funds have charged in prior years. You might be surprised at how much some of these funds charge.

Finding this statement can take a bit of hunting. You can visit your mutual fund’s Web site and poke around. It might be listed there. But if you’d like to avoid the frustration of a possibly fruitless search, call your mutual fund’s customer service line. The person on the other end of the line should be able to tell you how to get a copy of your fund’s Statement of Additional Information.

No one likes to pay the operating fees that mutual funds charge. They’re a fact of life, though. What you don’t want, though, is to be paying hidden fees that you don’t even know about. These fees can add up to some hefty dollar amounts over the years.

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While there is currently no mutual fund actually referred to a “dividend mutual fund”, the term refers to a professionally managed mutual fund that pays dividends to its shareholders. These are funds comprised of a selection of different companies’ stocks, typically companies that are well established. As such, their growth may be relatively low or non-existent, so capital gains are essentially zero. As a result, the return on investment is not as high as with some other types of mutual funds, but the risk of loss is lower, making them a good choice for retirement funds. However, there are few tax advantages in a mutual fund focused on corporate stocks.

Dividends are payments made to the shareholders, out of the percentage of the corporation’s profits which has been set aside for dividend distribution. Dividend-focused mutual funds select shares of solid companies, and will usually diversify by owning shares in several corporations, some of which may even be competitors. Should the profits of one company decline, decreasing the dividends from that stock, the loss is usually covered by the dividends paid by the other stocks in the mutual’s portfolio. The goal in selecting the companies for the mutual’s portfolio is not to find companies that are growing, and will yield a high capital gain, but to invest in companies that are financially stable, with a significant share of an established market, to ensure ongoing profits, hence dividends.

So-called dividend mutual funds can be a good low-risk investment vehicle, provided they are properly selected and that the mutual fund manager monitors them closely for any fluctuations. Minor ups and downs in one company or another are normal, but mutual funds must avoid these, or lose their preferred status.

Many factors enter into the selection of the companies in a good dividend mutual fund, such as company age, market share, profitability, flexibility and other factors. The mutual fund itself should be selected by carefully investigating the past performance and risk profile. Typically, a single quarter’s performance between two prominent mutual funds may differ by only one eighth of a percent or less, so selecting the best long-term performer can make a great deal of difference in the outcome of your investment.

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You’ve decided it’s time to start investing. You’ve heard and read about mutual funds. Everyone you know, it seems, is investing money in these vehicles. But you’re not quite certain. How do you know if mutual funds are right for you?

You have many choices when it comes to investing your dollars. You can put your money in the stock market. You can open a traditional or Roth IRA. You can place your money in such safe investment vehicles as bonds or certificates of deposits. You can even leave your money in your bank’s savings account.

Why, with all these options, should you go with a mutual fund? The answer to this, of course, depends on your current financial situation and your investing goals.

Mutual funds are well-regarded because they spread investors’ dollars over a wide range of investments. This means that investors diversify their money. If one particular stock or bond isn’t performing well, it will be offset by the other securities in a mutual fund that are doing well.

Many mutual funds also come with the investment services of money managers. These managers study the way various securities are performing. They then allocate investors’ dollars in the hope of maximizing their growth.

Because of this, a mutual fund might make sense if you’re a bit averse to taking risks with your dollars. There is no guarantee of success when you invest in any mutual fund. But the odds of you losing big dollars are not as high as they are with riskier investments. Most people who invest in mutual funds do it for the long haul: They understand that the value of their mutual fund investment will ebb and flow according to several factors. They are willing to wait out the bad times for the good times that they expect to follow closely behind.

By the same token, if you prefer the highs that come with investing in riskier ventures such as the stock market, a mutual fund might not be the best choice. The stock market hold the promise of immediate gains, and the specter of quick losses, too. Of course, mutual funds, because their securities mix almost always includes stocks, come with a bit of this, too. When you invest in the stock market, though, the highs are lows are much more intense.

Before investing in any vehicle, whether it be the stock market or a mutual fund, it’s your responsibility to first look at your own financial situation and goals. You might seek advice from others. But ultimately, whether to invest in a mutual fund is your call.

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Commodity mutual funds are professionally managed investment funds, specializing in commodities, or materials, which are used in other products. Wheat, sugar, soybean, coffee, gold, oranges, livestock, etc. are all commodities. The most attractive feature of the commodity mutual fund is that their prices tend to offer a very nice hedge against inflation, since their prices tend to rise in lockstep with it. Another benefit is that their investment returns aren’t tightly bound to equities or bonds. These two reasons make commodity mutual funds an important part of a well-rounded investment portfolio.

There is another option available for commodity mutual funds, which is called an ETF, or Exchange Traded Fund. ETFs can be purchased on the market, bypassing a fund manager. Most are passively managed (meaning they are tied to an index, which keeps the cost lower), and some carry tax benefits not afforded to regular mutual funds.

Hedge funds are probably the most widely known commodity mutual funds. However, one million dollars net worth is the standard qualification mark for hedge fund investments, which puts it out of the reach of many investors.

Commodities trading is unlikely to become depressed in the near future, for three major reasons. First, rapid development in China and India will drive the commodities market to new highs for some time, as materials will be in high demand during that growth. Second, diminishing food supply for a rapidly expanding world population ensures a healthy market in food commodities for some time to come. Finally, “peak oil” theory has brought greatly increased interest in new energy endeavors.

Self-made billionaires like Jim Rogers and George Soros have brought an awareness and popularity to the commodities trading market that is still growing each day. More available than hedge funds, commodity mutual funds may be the best option for many people, as they are open to all, and have an active management, with the ability to exploit market trends.

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What are Bond Mutual Funds? Types of Bond Funds

Bond funds are one of the more conservative professionally managed mutual funds around, in that they protect the invested principal and are invested in more stable debt vehicles, such as US government bonds, municipal bonds or corporate bonds. The mutual members receive a monthly or quarterly dividend, comprised of the interest paid on the investment, plus any capital appreciation of the shares. Hence, there is a regular income derived, often with the added benefit of being tax exempt.

US Government Bond Funds – these funds invest in debt securities issued by the US government. They include Treasury bills, Treasury notes, Treasury bonds, and also mortgage-backed securities, such as those issued by Fannie Mae and Freddie Mac. These are often exempt from state and local taxes, but not federal taxes. The greatest risks faced with these bonds are fluctuating interest rates and inflation.

Municipal Bond Funds – These funds invest in debt securities issued by state and local governments, to pay for specific projects, such as schools, highways and bridges. They are exempt from federal taxes, and in some venues, state taxes, making them popular investment vehicles. Since municipalities have been known to declare bankruptcy, however, these bonds are more risky than US bonds.

Corporate Bond Funds – These are the least secure of the bonds group, as they are not backed by any government entity. To offset this higher risk, they usually pay a considerably higher yield than either US or municipal bonds. Should the corporation find itself in financial trouble, however, these higher risk bonds can be rendered worthless.

There are several other types of bond funds, such as those that specialize in investing in zero-coupon bonds, international bonds, and convertible security bonds. There are also multisector bond funds that will spread their investments across several different types of bonds. Multisector bond funds are often selected for the higher risk portion of an investment portfolio, as the diversification protects the shareholder against downward spirals in one industry.

Investors usually choose mutual bond funds for two major reasons: regular income, and diversification. In some instances, as mentioned, tax exemptions make them even more attractive.

© What are Bond Mutual Funds? Types of Bond Funds

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When to Buy Mutual Funds

Mutual funds are a great investment for a lot of investors but when is the right time for you to buy mutual funds and what are the best mutual funds to buy? Well the answer is there is no answer, and it depends on your personal financial situation, your tax bracket and a number of other situations. Before you buy mutual funds let’s walk through some of these factors to see if mutual funds are right for you.

Before I get started I want to point out that before you buy mutual funds you need to consult your financial advisor to determine if mutual funds are right for you. Anything in this article should be taken as informational only and not construed as financial advice. Anyway back to the analysis on what mutual funds to buy now…

What are your investment goals? Before buying in to any funds consider your investment goals. If you are looking for a small return on your investment but are primarily concerned with not losing your investment then a fixed income fund is probably more appropriate, if you are looking for a little bit better return and are willing to take on some more risk perhaps a dividend mutual fund is something to consider, and if you are a risk taker willing to try to hit financial homeruns, then try looking at some high risk equity funds.

Did you buy mutual funds at your risk level? Something to keep in mind before buying mutual funds is the level of risk associated with the funds. When funds invest solely in stocks they take on more risk than their fixed income counterparts. Some funds have an extreme level of risk associated with them as well. For example, there are a lot of extremely risky funds known as emerging markets funds and while these types of funds have extremely high upside they have extra risk associated with them with factors like political unrest, currency exchange and simply the risk of companies going under.

If you are a risk averse investor, or an investor close to retirement you should be looking for either fixed income funds (funds that primarily invest in bonds and guaranteed income securities) or funds that have a good portion invested in these lower risk securities. For younger investors funds high amounts of upside are the best mutual funds to buy, provided they don’t mind the risk.

Where to buy mutual funds? Sometimes where you invest is as important as what you invest in. What do I mean? Well some companies charge more fees than others, some companies have better mutual fund options than others, and some companies just have better financial advisors who can show you how to buy mutual funds. Always do your home work before giving anyone your hard earned money, make sure you understand all the fees and terms. You may even be able to buy mutual funds online which may save you some money on fees and commissions, but again do your homework before investing a single dollar.

© When To Buy Mutual Funds

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Stock Mutual Funds

Stock mutual funds are mutual funds that primarily invest in stocks (hence the name). As we know, mutual funds invest in a variety of securities which are then combined and divided in to shares for investors according to how much they invested in the fund. Let’s take a closer look at stock mutual funds shall we?

Common stock mutual funds (also known as equity funds) have benefits and drawbacks for investors. First it should be known that funds that invest primarily or exclusively in stock are in a higher risk class than their money market fund or bond fund counterparts, so if risk isn’t your thing then you should look elsewhere. The upside to stock funds is that you get the benefits of buying stocks, which have outperformed almost every other investment over time, but you get the added diversification of buying many stocks which the everyday investor simply can’t afford to do.

There are a bunch of different types of stock mutual funds that you can buy, so you should be able to find a stock fund that matches your risk type and investment goals.

For those of you looking to be a little riskier with your investment income in exchange for a good return you could look in to growth stock mutual funds. Growth stock funds invest primarily in funds that have high growth upside, allowing the investors to benefit from the capital gains (appreciation in the stock’s value). There are varying levels of growth funds from lower risk growth funds to aggressive growth funds so be sure to understand which you are investing in before you hand over your cash.

You also have the option to invest in sector funds which are stock funds that focus primarily on a single sector of the market such as tech, energy or health care. As we learned during the dot com era, you can make a great deal of money by focusing on a single sector of the market, but you can also lose a great deal of money by focusing on a single sector as well (see the dot com bubble collapse of the early 00’s). If you were to invest in this type of fund it would make sense to invest in a few of them to diversify your holdings.

You can also invest in a more specific type of sector funds such as gold stock mutual funds which consist of precious metals sector stocks, but only those that focus on gold investing. Additionally you can invest in an entire index with stock index mutual funds, for those who want to spread the risk even more.

You can also invest in stock mutual funds that focus on a particular size of stock, these are known as cap funds. Market cap (short market capitalization) is a gauge of the total worth of a company and is calculated simply by the value of the common stock times the number of shares outstanding. Typically the larger the market cap the more stable the company, so large cap mutual funds tend to hold less risk than small cap or micro cap funds.

Stock market mutual funds have a lot of advantages and disadvantages so be sure you do your homework before you buy. As always consult with your financial advisor to be sure that stock funds are appropriate for your investment portfolio and ask for help determining which stock funds are right for you.

© Stock Mutual Funds

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