Buying on margin isn’t exactly getting unsecured loans .  An unsecured loan is where there is something for collatoral like a house or car, but with this type of borrowing, your money is collatoral.  Some people probably do well with this, but you are taking a big chance that you will lose more than you invest.  Make sure you fully understand margin before you use it.

If that doesn’t appeal to you, you can always invest more of your own money.  There are plenty of ways to do this.  Every time you spend money think if you would rather have what you are purchasing or have more money a little later to buy something much better.

Don’t decrease your quality of life to invest every penny you make, but I’m sure you can find quite a bit of money hidden in places you never thought of.  Think carefully when you spend and choose to save instead.

To add that much more, try getting a second job.  If you got a part time job making $100 a week, that’s an extra $400 a month or $4,800 a year you can invest.  That will add up fast especially if you are already investing a good amount to start.

Let me show you have these simple points can allow you to invest and earn so much more.

To start, you are investing $200 a month or $2,400 a year.  If you go through and save wherever you can, you are able to find an extra $300 a month or $3,600 a year for a total of $500 a month or $600 a year.

Then, you decide to get a part time job working 15 to 20 hours a week making 7 or 8 dollars an hour and are able to put aside another $400 a month for a total of $900 a month or $10,800 a year.  That is a difference of $8,400 a year!

If you were able to invest and make an average return of 8% investing that amount each year for 10 years, you would be increasing your earnings from approximately $37,000 to $167,000 which is a difference of $130,000.  Can you believe that the little extra work will get you an extra $130,000 in just 10 years time?

A load is essentially a commission you pay on the mutual fund. With a no-load mutual fund, you don’t have to pay a commission for your mutual fund because it is distributed to you directly from the investment company.

Load mutual funds usually charge you a percentage of your return. For example, they might charge you a 3% commission. If you make a 6% return, you only get 3%. This is an example of a back-ended fund because the commission is taken out of the proceeds. This is slightly better than a front-end fund because the fee you pay has had time to earn money. With a front-end fund, you pay the 3% up front and that money has no chance to earn any money.

From first impressions, you assume a no-load fund is superior because you don’t have to pay a fee, and most often, this is true. Think about it; if you invest in a load fund that’s making a 12% return, that’s great. It’s also more than 8% that maybe another no-load fund is making, but if the load commission is 5%, you’d still be making more with the no-load fund.

Just because it’s a load fund, doesn’t mean it will earn you more money.

With many things in life, we often think that the more it costs, the better it is. This is often not the case. In fact, some colleges raise their tuition just to get more people to enroll because they think that with a higher price, they have increased the value of their education. In actuality, they’ve changed nothing about their teaching.

Also, even with the experience and knowledge fund managers have, it is impossible for them to always find the perfect stocks that will make the most money. The stock market, or any market for that matter, is impossible to predict. While they can make predictions of what a stock will do based on the past and technical information, it’s still possible that you could choose stocks randomly from the paper and have a better return.

Financial knowledge and research will help in investing, but over the long haul, it’s very possible you will probably earn at least the same amount with no-load funds or even more, than with load funds after commissions.

What about Hedge Funds?

Many news stories have recently come out talking about hedge funds. Hedge funds are similar to mutual funds but are not subject to the same regulations as mutual funds and are therefore some investors consider hedge funds to be more risky than highly regulated mutual funds. Many investors in mutual funds would not be able to invest in hedge funds because of the high minimum net worth requirements (usually $1 million). Nonetheless, there are many enterprising portfolio managers are asking how to start a hedge fund and are finding that it is relatively easy to do, with the right legal counsel of course. 

What should you choose?

Unless you are very confident in a load fund, I suggest going with a no-load fund. You will at least save some money up front.

If you are interested in furthering your knowledge of mutual funds and possible get into trading them, pick up a copy of Profitable No-Load Mutual Fund Trading Techniques: For the Individual Investor.

Find a Brokerage Firm

As a beginner investor, you want to look for the most cost effective investments. On the internet, there are several investment companies that will allow you to trade stock and invest in mutual funds.  Look around to find one that is trusted with excellent reviews and has features that will greatly benefit you.

Year ago, you would have had to set up an account with a brokerage firm in person.  Now, investing in mutual funds or stocks is so much easier because you can do it online.  Online stock trading has many benefits over a brick and mortar firm, mainly its simplicity and ease, but it can also be cheaper.

Here I have listed some of the online banks and brokerage firms that I use and that I have had success and no trouble with at all.  I have been involved with both for over 2 years and have never had a problem with either.  Trading stocks online is as simple and safe as it gets!

ING Direct is a trusted online bank that has had available a savings account with a high rate of return for a while now. They have recently acquired ShareBuilder an online brokerage firm. Together, they now offer mutual funds that you can invest in.

What’s great about Sharebuilder is that you don’t need to have a lot of money to start investing. One benefit of mutual funds is that you can invest a small amount and still stay diversified. Sharebuilder offers one of the lowest minimums for investing in mutual funds at $1,000. If you don’t have that much money yet, you can set up an automatic investment plan for as little as $100 until you reach the minimum.

Choose the Type of Mutual Fund

Not all mutual funds are created equally. The fund you choose will depend on how old you are and how much you are willing to risk. Sharebuilder offers several mutual funds in the following classes:

Money Market Funds

Asset Allocation Funds

Fixed Income Funds

Domestic Equity Funds

Enhanced Index Funds

Global Funds

International Funds

Specialty/Sector Funds

You can choose a conservative fund if you are closer to retirement and want to take less risk, or you can choose the growth fund if you are younger and are looking for a potentially higher return. There are also funds for large, mid, and small cap companies, a real estate fund, international funds, and more to choose from.

All you have to do is sign up with ShareBuilder. Once you sign up, you can either buy stocks, invest in mutual funds, or both. Get started now, the sooner the better!

What are money market mutual funds made up of?

They contain short term debt instruments. Short term usually means six months or less. This type of fund contains short term debt instruments such as short term bonds that are constantly maturing. This is why you will not see a money market fund with a certain rate.

Money market funds report 7 day returns. For example, you might see a fund with a 7 day return of 3.53%. This is not how much you will earn in 7 days. For example, if you have $1,000 in a mutual fund earning 3.53%, you will not earn $35 in seven days. The rate is for over 1 year, so you would earn 3.53% divided by 365 times 7 which equals $0.0138. That is small, but over a year it would equal $35.

Why isn’t it the same rate all year?

The rate constantly changes because the fund in constantly earning different amounts. The investments are short term, therefore they are constantly maturing and new debt investments are being added at different interest rates.

By determining a 7 day return, investors can see how much they are earning and have a more accurate number than a year average.

Should you invest in a money market mutual fund?

A money market fund should not be used as a long term investment. It does not give a very high return for retirement or other investment goals. It is a good place to keep your cash. Often brokerage firms will keep your cash not invested in a money market account.  You don’t exactly need investment software to put your money in a money market mutual fund.

There aren’t actually mutual funds that are called ‘dividend mutual funds’, but there are mutual funds that will pay you dividends. If you own an index mutual fund or other type of mutual fund that owns stock of companies that pay dividends, you will receive dividends.

A mutual fund is a collection of different companies’ stock. If you have a well-diversified mutual fund, it’s likely that you will catch some dividends. Some funds will pay more dividends than others, but this is entirely dependent on how many of the companies their invested in pay and how much.

Should you invest in a dividend mutual fund?

Investing in a fund that pays high dividends has its advantages and disadvantages. First of all, a big perk is that you get dividends. A dividend is what you get from a company who decides to share its profits with its shareholders. This is in addition to any capital gains you may get. Dividends are another form of income.

Dividend stocks are great for retired investors and those nearing retirement. Stocks that pay high dividends are usually strong companies that have been around for a while. They don’t grow much which means their return through capital gains is lower, but they are almost guaranteed income through dividends.

Dividend mutual funds are great for those close to retirement.

As you get closer to retirement, you probably aren’t going to be refinancing your home such as an Austin mortgage refinance, or a mortgage refinance depending on where you live.  Hopefully you won’t have a mortgage at this point and you can invest more in a dividend mutual fund.

A downfall of dividend stocks is that, as I previously mentioned, they often don’t increase in value very much. This usually means a lower rate of return. If you are looking for investments that will earn you a lot of money and don’t mind a little bit more risk, you would probably do better by skipping the dividend heavy funds.

If you are nearing retirement, it’s a good idea to increase your bond portfolio percentage and increase the amount of dividend paying stocks you own. By putting some of your money into mutual funds paying high dividends, you can hopefully ensure a more stable income and avoid the risk that you really don’t want much of when you retire.

If you buy a share of stock, you own part of that company. For every share you buy, your ownership increases. Stocks are equity investments because you have equity in the company. In order to make money with stocks, you have to sell your stock at a higher price than you purchased it for a capital gain.

If you buy a bond, you have lent money to the company for a specified period of time. You do not own any of the company. In order to make money with bonds, you lend money to the company, and every year or six months, they pay you interest. When the time is up and your bond has reached maturity, the company repays the money you lent them. You also have the option of selling the bond before maturity.

A mutual fund is simply a mix of stocks, bonds, or both. They often include other investments as well such as derivatives. A large amount of people pool their money together and purchase a wide variety of securities. This allows those with little to invest to be able to diversify their portfolio.

Instead of buying shares of stock in one company or a handful of companies that you choose, or buying bonds of different companies, you buy shares of a mutual fund. A fund manager assigned to that mutual fund manages the portfolio and chooses the investments. You make money similarly to stocks by selling your mutual fund shares for a gain.

Which should you invest in?

You may be wondering why you would invest in a mutual fund if you could just buy the stock or why you would buy the stock or bonds if you could just invest in the mutual fund. Basically, you are wondering why you would choose one over the other when they include the same things.

One benefit of a mutual fund is that if you have a small amount of money, you will be able to diversify your portfolio. For example, if you want to invest $1,000, you may only be able to invest in a few different companies because you can only buy whole shares of stock. Similarly, if you want to buy a bonds, you would probably only be able to buy one, which would be risky in that you’d either get a very low rate of return, or lose all your money if the bond turned bad.

A mutual fund is foolproof diversification. You don’t have to choose the right stocks or bonds, which leads us to the next point. If you are the average person and don’t have a college degree in finance, it’s likely you don’t know much about investing. If you don’t know how to research and pick stocks, you are probably wary of your own choices, worried that you might lose money.

With mutual funds, a fund manager makes the choices, so you can feel a little more confident in the chosen stocks. Also, you can see a funds past performance when choosing a mutual fund. This helps give you a little more piece of mind.

Ultimately, mutual funds are great for the average person who doesn’t have a lot of money to invest, a lot of knowledge about investing, or the time to spend choosing investments and managing a portfolio.

Do you need more information on mutual funds? David Scott’s Guide to Investing In Mutual Funds is a affordable book that will clue you in on all things mutual funds.

Other Types of Investments

Stocks, bonds, and mutual funds are far from the only types of investments out there.  You can learn beginners forex trading, invest in commodities, and so many other investments.  Make sure you do your research before investing in anything.

One of the best aspects of investing in mutual funds is that with each investment, there is instant diversification. Diversification is important for all investors because it reduces risk. It is important to take risks when investing because without risk, you won’t make very much money.

For example, putting your money in a traditional bank account has little to no risk (as long as it is within the $100,000 FDIC insured), but at 1% or less, you will make next to nothing. You do need to take risks when investing. The younger you are, the more risk you should take.

Diversifying your investments eliminates a lot of the unnecessary risk that comes with investing. If you invest $100,000 in one company and it loses 5% for the year, you just lost $5,000. If instead you invest $20,000 in 5 different companies and they earned -5%, 2%, 16%, 8%, and 9%, you would have made an average return of 6% and made $6,000. It wouldn’t be as big of a deal that you lost 5% because you gained in the others.

Mutual Funds Work through Diversification

Mutual funds are able to include hundreds of investments in stocks, bonds, currency, and other securities. How are they able to include such a wide array? Essentially, you are buying tiny pieces of each investment. You would not normally be able to do this with a brokerage firm, but the unique aspect of a mutual fund allows you to do just that.

A mutual fund takes a large group of investors. Each investor is interested in investing in a certain type of investments. The mutual fund collects to money from the investors and uses it to purchase many shares of whichever stocks they choose. They then turn around and issue a share of the mutual fund to the investor containing many pieces of other stocks.

If you were wealthy, you would easily be able to invest in many different companies and have someone manage your portfolio for you. Unfortunately, most of us aren’t very wealthy, and we must start small. Mutual funds are the perfect solution because they protect your investment by instantly diversifying your portfolio.

If you want to start investing money now, but you don’t know much about investing, you should try investing in mutual funds. Even if you start learning and studying up on how to invest, you can invest in your own stocks later, but still start investing now so you start earning money as soon as possible.

There are different benchmarks when considering the average return of the markets. It’s not a simple as averaging all the stocks in existence, there are just too many to do this. Finance professionals usually use an Index to figure this out.

What is an Index?

If you really want to understand what an index is and how it works, you need to get into statistics. For those of us who aren’t so interested in statistics, an index simply measures the changes in the stock market by using a small sample of stocks.

There are several different Indexes with the most popular being the Dow Jones Undustrial Average (DJIA) or the Dow for short, and Standard and Poor’s 500 (S&P 500). The Dow is a collection of 30 different stocks where the S&P 500 is, you guessed it, 500 stocks.

What do they have to do with mutual funds?

An Index mutual fund is a mutual fund made up of the stocks found in the specified Index. For example, an S&P 500 mutual fund is a mutual fund that contains all the stocks in the S&P 500.

Index mutual funds do not rely on the “expertise” of a “professional”, instead you are getting a rough average of the market. If you can’t beat the market, you can at least do as well as the market.

Why should you invest in one of these?

If you want to make the average that the market makes, Index funds are perfect for you. Many funds will say they can earn you more but often fail to do so. The least you can do is consistently earn the average, why not go for it?

]]> http://investinginmutualfundsmadeeasy.info/2009/02/16/what-are-index-mutual-funds/feed/ 0 http://investinginmutualfundsmadeeasy.info/2009/02/04/bond-mutual-funds/ http://investinginmutualfundsmadeeasy.info/2009/02/04/bond-mutual-funds/#comments Wed, 04 Feb 2009 19:30:07 +0000 45coolp http://investinginmutualfundsmadeeasy.info/?p=59 What are bond mutual funds?

Just like stock mutual funds invest in a variety of stocks, bond mutual funds invest in a variety of bonds and other debt instruments. A debt instrument is different from an equity instrument. An equity instrument gives the holder ownership. Stock is an equity instrument. When you own a share of stock, you own part of that company.

A bond is a debt instruments. If you buy a bond, you are lending money to the company and they are indebted to you. A bond mutual fund contains debt instruments of different risks, companies, and government bonds.

What are the benefits to having bond mutual funds?

Because bonds are usually less risky, unless you get into junk bonds, bond mutual funds are often less risky as well. This makes them appeal more to the retirement or close to retirement crowd.

Keep in mind that with less risk you get a smaller return. For example, if you invest in a penny stock (stocks of new companies that cost less than a dollar) you have the possibility to make a very large return, much more than the average return of the stock market. But, it is very risky because there is a good chance that the company could go out of business. It will either have incredible growth that you can cash in on, or it will be a total dud and you will lose all your money.

On the other hand, you can eliminate the risk almost completely by investing in government bonds, but your return will be minimal. This is why bonds are usually less risky with a smaller return. Still, there are bonds that are very risky, often called junk bonds. These can be just as risky as some stocks with the only difference being that they are debt instruments and not equity.

Another benefit of bonds is that when a company goes bankrupt or out of business, they have to pay the debtors first. Stockholders rarely get any piece of the pie.

When should I invest in bond mutual funds?

If you’re over 30, bonds will most likely take some part in your investment portfolio. In your 30s and 40s, they should be minimal, which could be taken care of by holding a mutual fund with stocks and bonds. If you are retired or close to retirement, you can increase your holding of bonds.

If you look for a high yield investment, you can make more money. In order to do this, you need to keep a few things in mind. These tips will help you make more money with your investments.

With more risk comes more reward.

The more risks you take the more likely you will earn more money. Government bonds are the least risky investments out there which is why they will also give you a return of the least money.

When you invest in mutual funds, if you are looking to make more money, choose riskier mutual funds instead of conservative mutual funds. If you are using your mutual fund investments for retirement and are retiring soon, or you plan on using your money within the next 15 years or so, you may want to go a little less risk. With more risk, you also have a higher chance of loser your money, and if you only have a few years left, you don’t want to worry about losing your money.

Manage your risk and don’t go overboard.

More risk equals a higher return most of the time. Ideally, every risky investment you make will give you a high return and only a high. Unfortunately, it is called risk because you risk the investment turning bad causing you to lose money.

It’s important to make sure you have to right amount of risk at the right point in your life. If you are using mutual funds for your retirement, buy the riskiest investments when you are in your twenties and then maintain less and less risk as you get closer to retirement.

Make more money with stocks.

Stocks are the best investment for earning a high return. If you want to make a lot of money through investing, you must invest in stocks. If you are really looking for a high yield investment, focus on stock funds.