Financial Blog

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The Pros And (Mostly) Cons Of Mutual Funds

By Larry Lane for www.InvestorZoo.com

Why purchase a mutual fund?       

The chief reason investors purchase mutual funds are for diversification. A mutual fund may hold as little as twenty securities all the way to several hundred. These can include stock, bonds as well as cash. If your investable assets are under ,000, mutual funds can be an ideal tool to diversify your portfolio. By investing in a mutual fund, you are in fact paying for a professional manager or team of managers to oversee your investment. Since mutual fund companies have huge amount of money to invest, they may have the advantage of meeting directly with the CEO and upper management of a company before investing. This is certainly an advantage a mutual fund has over an individual investor. If you are busy living your life or don’t have the investment skills to research individual stocks, purchasing a mutual fund may be the ideal investment.

Need to sell quickly, no problem!       

Most investors think of a mutual fund as a long term investment. However, selling a mutual fund is as easy as selling a stock. If you place an order to buy or sell a mutual fund, you will receive pricing at the close of the day; not at the exact time you call to place the order. Mutual funds are considered a very liquid asset.

The pitfalls of mutual funds   

As with every security, mutual funds do have their drawbacks. While a mutual fund manager is bound to invest according to the mutual fund’s prospectus, you do not have control over what individual stocks your manager buys or sells. If you have an objection to a certain stock such your manager purchasing a tobacco stock, you have no recourse.

Hot one year, cold the next  

With a mutual fund, your money is pooled with other investors. This can create a tremendous problem for you as well as your mutual fund manager. Money may pour into a hot mutual fund you own. This may force the fund manager to hold that money in cash or invest in other stocks outside the fund’s intended purpose. This is generally the reason a top performing fund may suffer in its return the following year. Remember, your mutual fund company is all about their bottom line too. The more money they have in assets under management, they more fees they will bring into their firm.

In addition to inflows, there are redemptions your mutual fund manager must take into account. Should there be a mass exodus of the fund you’ve invested in, your fund manager must sell shares to pay the shareholders who have sold the fund. In many cases, a mutual fund may hold cash to account for redemptions. This may cause problems for you as well as it may put a drag on your total return.

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Taxes, taxes, taxes                        

One huge problem and perhaps the biggest drawback to investing in a mutual fund are the tax liabilities you will have at the end of the year. If you mutual fund manager sold stocks due to shareholder redemption or simply sold stocks because they feel that a particular stock within the mutual fund’s portfolio has reached its full potential return, your fund experiences a capital gain. This capital gain is passed onto you and you must claim it as such on your tax return; even if you haven’t sold any shares. These gains must be distributed to all share holders by the end of the year. Typically a mutual fund will report these gains in November or December. If you are contemplating investing in a mutual fund later on in the year, you must call and ask when their distribution date will occur so you don’t get stuck with a tax bill. Here’s a double whammy: if your fund had capital gains on some stocks but still suffered a loss in NAV (net asset value), you still may be liable to pay the tax for the capital gains generated early in the year.

Note: This only applies to taxable accounts. If you are a mutual fund investor and it is held in a non taxable account such as a 401k or IRA, the above does not apply as you are not taxed until you withdraw your money out of your retirement funds.
 

Most fund manager do not beat their benchmark          

If you are getting a little concerned about mutual fund investing, there’s more sobering news. Most fund managers do not beat their unmanaged benchmarks. Researchers at Standard and Poor’s did a study in 2006 and found that only 38% of large cap fund managers managed to beat the S&P 500 (the standard benchmark which a large cap fund manager would be judged against) over a 3 year period. Over a 5 year period that number drops to 33%. It gets much worse for small cap investors. Small cap mutual fund managers lagged their benchmark by 24% over a 3 year period and just 21% beat the corresponding index over a 5 year term. That means that over a 5 year period, you have a 67 to 79% chance of losing to an unmanaged index. In addition to the reason listed above, there is the human factor. Throughout the history of the market, investors have been seeking the holy grail of investing. If the highest paid smartest mutual fund managers haven’t found it after 100 years, chances are it doesn’t exist.

Fees and commissions           

As an investor, you are in effect paying fees to a company to professionally invest your money for you. I can’t think of a single mutual fund that sends you out an itemized bill at the end of the year. However by law, mutual fund companies must send out a prospectus detailing every fee they charge. If you have insomnia, they are highly recommended reading. Before investing, please call the fund company and consult with your financial planner. Get educated

Luxembourg Is Home To Specialised Investment Funds

The introduction of a new type of investment fund in Luxembourg in 2007 may be of interest to well informed investors and professionals within the investment industry. The new Specialised Investment Fund (SIF) has been introduced in reaction to a strong growth within the industry and will provide an alternative mode of investment.

The SIF is a flexible Undertaking for Collective Investment (UCI) that provides more elasticity than common UCI or SICAV. However, the SIF will be more regulated than alternative non resident private funds that have been established in foreign jurisdictions.

Supervised by the Commission de Surveillance du Secteur Financier (CSSF – the financial supervisory authority for Luxembourg), no promoter approval is required for the SIF. It is also important to recognise the difference between the SIF-Fund and the SIF-SICAV. The SIF-Fund is a fiscally transparent fund that is held in trust by a Luxembourg-established management company. The SIF-SICAV, on the other hand, is fiscally non transparent. It could also enjoy treaty benefit and enjoys tax exemption.

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To qualify for SIF-SICAV is should be incorporated as a Private Limited Company or similar, although it is also possible to have a single member company.

It is important to remember that, while the SIF can invest in any type of securities – including hedge funds, real estates and shares, it will not offer shares to investors unless they are professional and well-informed. Those that have been deemed acceptable candidates for SIF shares include but are not limited to institutional investors, professionals and investors that have proven their credentials by, for example, holding a valued position in a bank or management company.

There are a number of restrictions and factors that must be taken into consideration when choosing investment schemes such as the SIF. For example, it must obtain approval for its legal documentation and activities from the CSSF within one month of its launch. Additionally, the supervision of assets and the deposit of securities must be undertaken by a Luxembourg bank and the Central Administration should also be based in Luxembourg.

The SIF must also ensure that an annual net asset value and a report are published in the six month period following the year-end. The minimum capital has been set at EUR 1,250,000 and this must be attained within one year. However, contributions in kind are permitted.

The success of the principle investment of funds is attributed as the driving force behind the Luxembourg government’s decision to introduce the SIF and a number of well-informed investors and organisations are testing its potential for themselves.

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Mutual Funds articles

by nathanhart

Bogey fears cost big bucks: study

Even the greatest golfers, including Tiger Woods, systematically miss the opportunity to score a birdie out of fear of making a bogey, a study by two University of Pennsylvania professors has shown.

However, playing it safe carries its own risks in golf and business, professors Devin Pope and Maurice Schweitzer said in their paper entitled: “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes”.

The academics studied putts during pro golf tournaments and their research suggested the “agony of a bogey seems to outweigh the thrill of a birdie”.

They calculated that type of decision-making bias costs the average golfer about a stroke during a 72-hole tournament, translating to a combined loss of about .2 million in prizemoney per year for the top 20 golfers.

“This research provides evidence that people work especially hard in order to avoid losses,” Pope said.

The researchers found golfers avoid the possibility of loss by playing conservatively when they could do better than par but will try harder if they are at risk of coming in above par.

Pope said “loss aversion” is part of a growing field of behavioral economics, which explores how human psychology impacts markets and business.

In a business context, the professors said par might be equated to quarterly earnings or investors’ approach to selling or holding on to stocks depending on what they initially paid for the shares.

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The professors said their work challenges theories which suggest bias in decision making does not persist in markets.

They used data from 230 PGA Tour tournaments between 2004 and 2009, concentrating on 2.5 million putts attempted by 412 golfers who each made at least 1,000 putts.

Pope, who does not golf, and Schweitzer, who only occasionally plays, said the study showed even experts in a subject suffer from bias in high-stakes settings.

“The bottom line is this,” said Schweitzer, “If Tiger Woods is biased when he plays golf, what hope do the rest of us have?”

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Trompetterkorps der Koninklijke Marechaussee (The Band of Her Majesty Royal Netherlands Military Police) (Orchester der Königlich Niederländischen Militärpolizei) The “Colonel Bogey March” written in 1914 by Lieutenant FJ Ricketts (also known as Kenneth Alford), a British military bandmaster and director of music for the Royal Marines. The origin of the tune is without doubt british. A memorable feature of the “The Bridge on the River Kwai” movie is the Colonel Bogey theme, that’s whistled by the POW’s when they enter the camp. Police Tattoo South Australia 2006 Colonel Bogey March – German Army Band: www.youtube.com Hello,Le soleil Brille www.youtube.com

Mutual Funds articles

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Global Etf Research Website Launches In Australia

Exchange Traded Funds (ETFs) are fairly new to the trading arena and since their first introduction in the early 90′s they have seen a phenomenal rise in popularity. Due to their flexibility, ETFs offer a huge trading market, and like most things new, much remains unknown about ETFs. It is due to the lack of available ETF information which has seeded the launch of ETFFunds.com.au

At the moment, all ETFs are essentially index funds, which is to say they track the performance of a specific stock or bond market index or other benchmark. The first ETFs to hit the market back in 1993 were SPDRs, or “Spiders,” which track the Standard and Poor’s 500 index of large-company stocks.

The current issuer market is dominated by State Street Global Advisors, Barclay’s Global Fund Advisors, iShares and Vanguard. Everything is on offer such as ETFs which track anything from the entire U.S. stock market to various segments of it such as large stocks, small stocks, value, growth, energy, tech, utilities, and REITs.

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ETFs are also available which track developed foreign markets, individual countries or even emerging markets. They have also spread into covering the bond market (Treasury, corporate and Inflation backed). As one would expect ETFs are available which also track commodities such as gold, silver, crude oil, pork bellies and live cattle. There is approximately 150 ETF category types which means it can become very overwhelming and time consuming to locate the correct ETF investment which is suited towards your portfolio. Websites such as ETFFunds.com.au gather and filter all of the ETF market news and categorize it on an easy to use platform. The website also provides free charting and specific news for each ETF.   

Since ETFs trade on an exchange like stocks, you will need access to a trading platform to be able to buy or sell them. Introducing brokers such as Enfinium International provide direct market access to just about every ETF product from around the Globe.

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www.etfFunds.com.au is a website dedicated to ETFs. Whether you’re an individual investor interested in learning about ETFs or a financial advisor using ETFs for high networth clients the ETF Fund website will have the answer.

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Replacing Light Switches

Replacing Light Switches

 They just don’t make light switches like they use to. Haven’t you heard that one before! Well, it’s a fact in the case of light switches. You know when you need to replace a light switch when the switch simply does not turn on the light anymore or the light flickers when turning it on. Light switches that builders and electricians install in homes are the most inexpensive available on the market and their service life is about three years if the switch is located on a light circuit that is frequently used such as in kitchens, bathrooms, and entryways. They cost less than a .00 each, whereby good quality light switches cost approximately .50 or more and will last for ten or more years.

Nearly every home owner needs to replace light switches from time to time. He can either do it himself or call an electrician that will charge you just about a 0.00 to change a light switch. This is a simple task that any home owner can perform with ordinary household tools.

Tools required:

Screwdriver Long-nose pliers Voltage tester Wire strippers Wire cutters

Types of Electrical Switches:

There are three basic types of light switches used in homes:

a. Single-pole switch – which is the most common switch. It is identified by two wire terminals plus a ground wire. The toggle on a single-pole switch is clearly marked “On” and “Off”.

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b. Three-way or four-way switch – this electric switch is not marked “On” and “Off” because it depends on the other switch (s) in the circuit as to it is “On”  or “Off” being in an up or down position. They have three wire terminals plus a ground wire. This type of switch works in tandem with another three-way or four-way switch so power can be turned on and off from two or more different locations.

c. A Dimmer switch – this type of switch dims or raises the lighting level.  

How to Replace the Light Switch

1.  Remove power from the light switch by turning off the circuit breaker that feeds the switch. It may be labeled in the circuit breaker box, if not, turn the light switch on and off to ensure you have the correct circuit breaker. If the light goes out you have the correct breaker. If you are not positive check for voltage once the light switch wiring is exposed.

2.  Remove the light switch cover.

3.  Test for power using the voltage tester to insure that there is no power on the circuit.

4.  Unscrew the two screws that hold the switch in the box and pull the switch out of the box.

5.  Label each wire. If it is a single pole switch it has two black wires and a ground wire; green or bare copper. One of the black wires brings the current to the switch and the other takes the current from the switch to the light.

6.  Loosen the terminal screws and pull off the wires. If the wires are attached to the switch by the “push in” connectors cut the wires from the switch as close to the switch as possible.

7.  Remove the old switch and verify the new one is the same type.

8.  Put the wires on the new switch terminals and tighten the terminal screws. If you had to cut the wires you will need to strip about ¾ of an inch of the wire insulation away and attach them to the new switch by the terminal screws or push the wires into the “push in” holes.

9.  Install the new switch in the switch box by folding the wire into the box and replace the screws.

10.Ensure that no bare wire is contacting anything.

11.Replace the light switch cover.

12.Set the circuit breaker in the “On” position and test the new switch.

If the switch is a three-way or four-way switch there will be four wires; a black, red, and white, and a ground wire (green or bare copper wire) attached to the switch. Label the wires with a piece of tape before disconnecting them. Install the new switch in the same orientation as the old switch. Attach the wires to the switch and install the switch in the box. Install the cover plate and turn on the circuit breaker.

If the switch is a dimmer switch it could be a single pole or three-way switch. In either case it is wired just like the single pole and three-way switch above.

Mutual Funds articles