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I have a small amount of money that I can either put into a mutual fund or a savings account. How do I decide which is a better investment?

2006-08-21 14:12:35 · 9 answers · asked by Super Flippy 2 in Business & Finance Investing

9 answers

You decide whether or not to invest in a mutual fund or a savings account by comparing the following factors: 1) When will you need the money? If you have a short time horizon (less than a year) that suggests you should use a savings account, a long time horizon (more than 10 years) argues for a investing in an equity mutual fund. 2) Your risk tolerance. The more risk-averse you are, the more you should put your money into the savings account. 3) Your other investments. If you have CDs and other interest bearing accounts, you may want to diversify through an equity fund, if you already are in the stock market through a 401k or other means, perhaps you want to balance it with more cash/savings.

You may be surpised, but the following is the last consideration: 4) The yield of the savings account versus the expected return of the mutual fund. If we knew the exact future return of the mutual fund, this would be an easy consideration, but we don't. You have to consider that while in the past mutual funds have returned more in the long run than risk-free savings accounts, they are much riskier.

2006-08-21 17:39:24 · answer #1 · answered by NYRE4159 1 · 0 0

It can be if you pick the right mutual fund. However, 70% of mutual funds underperform the market in general so you have to be very choosy. One of your responders advised you to put your money into a money market account. That is pretty good advice. The U S economy today is not doing too well what with high energy prices, a terrible balance of trade deficit and budget deficit, and a war that has no end in sight.

The wise choice is to sit tight for a couple of years and maybe with the next administration things might improve.

2006-08-21 15:23:53 · answer #2 · answered by Anonymous · 1 0

It's always a good time to invest in mutual funds. If you're young go into an aggressive account, if you're old go conservative. Mutual fund payoffs in the long run do much better than bank interest.

2006-08-21 14:18:47 · answer #3 · answered by Answerer 7 · 0 0

I would recommend investing in mutual funds on a regular basis... try contributing so much every month to take advantage of dollar-cost averaging. You'll be surprised how much your money will grow in a well-managed mutual fund over a ten-year period. If you're not willing to be a long-term investor, you're doomed to savings accounts and certificates of deposit.

2006-08-21 14:26:31 · answer #4 · answered by Mike S 7 · 0 0

What sets this one apart from all the others? Did it beat the Dow last year? No. If it can't beat the index it tracks, does that make it a "good" fund? No.

Let’s look at Investment Company of America (ICA), owned and operated by American Funds (AF). AF is an awesome fund company for a couple of reasons. There are several advantages and disadvantages:

1.AF is a private company which means they only answer to their MF holders. Fidelity is a good company also, but they are owned by stock holders. In the long run the company that only answers to you, the MF holder, is going to look out for your best interests.

2.AF also has some of the lowest annual fees to maintain an account of any MF company. All that being said, depending on your situation ICA may or may not be good for you. You need a competent advisor to help you with that.

3.I would be cautious with ICA as it is one of the largest MF in the world. They may seem like a good thing but it actually can be bad. It means it has much less flexibility to move its money around when conditions warrant it.

4.As far as EJ goes, they hire people on average who have very little experience in the industry, so at a minimum make sure your rep has a lot of experience and didn't just start last month at this. They also have agreements with companies like American Funds where their reps get a bigger commission to them then they do with other products. The concern being your advice from EJ might be tainted by the reps desire to get more commission. You need to work with an independent rep to assist you with you decisions; one who will give you all the information and doesn't have a hidden agenda.

Now let's look at MF's, in general, or the decision to use one at all.

If you invest in a MF, you have turned that responsibility over to someone else. To me, they are mostly the same, in general, in terms of results. Fewer than 10% can beat the Dow or other index it follows because of their fees. Why would you pay someone you don't know, whom will almost certainly underperform the market, an annual fee of 2.5% to do something you can do yourself, and do it better by buying an ETF, without any input from you after the initial purchase? An ETF is a publicly traded “Exchange Traded Fund, that trades just like a stock). Just buy the Diamonds (the DJIA ETF) if you want to let it ride on the Dow, or the Spyders (SPY - the S&P 500 ETF), or the Nasdaq (QQQQ), or diversify across the entire market by buying all three. The ETF's trade just like a stock or MF. If you want to diversify, and you want to Buy and Hold, buy an ETF.

A MF is always "in" the market, so you are at the mercy of the ups and downs of the Dow. You are unable to manage your risk with a MF, so you can't put a Protective Stop on a MF, at say 10%, to lock in your profits when the market goes down. You don't have a clue what's going to happen. That is not my idea of investing.

Actually, if done properly, it is more work to investigate all of the MF's and their advisors and their traders and their fees and their methods, than it is to investigate all the similar applicable info about stocks. To me, it's more like a conscious choice to be ignorant, to simply and blindly turn your money over to a stranger because they are "listed," like you do at a bank. Stocks are "listed," as are commodities and ETF's and everything else. With a mutual fund, you've just added a whole new set of unknowns to the equation.

The best you can do in any investment is try to increase your odds of success and reduce your risk. You can do these things yourself, but not in a mutual fund.

MF's are so 20th Century. Relics of the past. Unneccessary. Buy an ETF. Or sell an ETF short and bet on the downside. There are two sides to every market, not just the upside.

Like when your teenage daughter fails to come home on time, you worry because you don't have enough information to "know" what will happen. You go through all of the possible outcomes, but because of a lack of information and being uninformed, they are all left up in the air and equally unpalatable except for the one outcome you "wish" and "hope" for.

But with investing, just a little foreknowldge and information can make all of the possible outcomes known. It takes some hard work and learning, but better than being the anxious parent, hoping and praying and wishing for your daughter to come home.

If you do your work, evaluate the risk, identify entry and exit at support and resistance levels or use whatever signal generator you are comfortable using, and apply good money management techniques, then you've done all you can do, and no amount of worrying or "hope" or "wishing" will change the outcome. You know what yours risks are and how much you can lose, and your profit is open-ended.

This is why mutual funds (mf) and investment advisors managing your money doesn't make any sense to me. You are the anxious parent, waiting for an unknown outcome without any control over your own future. You can do the same thing a MF can do by buying Index ETF's. But you can also take profits off the table, add Protective Stops to limit your risk, and stay out when risk becomes unpalatable. You can also bet on the downside of the market (short), whereas a MF cannot. A MF is always "in" the market (long), exposing you to enormous risk and "worry."

You cannot avoid or escape risk. You can put your money under your mattress, and inflation will eat at it, or the rats will, or there might be a fire, or a robber may take it. But you can manage risk, if you invest it properly. This presuposes you have foreknowledge.

2006-08-21 14:30:13 · answer #5 · answered by dredude52 6 · 0 0

It is always a good time to invest in mutual funds. What matters are your requirements i.e. age, amount to invest, your risk tolerance etc. Talk to a good financial planner and they can help you decide the best route

2006-08-21 14:24:05 · answer #6 · answered by Jennifer G 2 · 0 0

Hi I work for a Financial firm, and our money market rate is at its highest. 5.9% You can go to our website and find the broker near you, and he can advise you (free of charge) on where to stash your cash. I would put it in a money market account. You will never lose, only gain money at a higher interest rate than a savings account. Take care.

http://www.edwardjones.com

2006-08-21 14:23:02 · answer #7 · answered by Rayna D 2 · 1 0

What was formerly a secret approach to high returns in financial markets, is now being opened up to the general public (if you know where to look). Visit http://www.myfreeforex.com. This information could change your life.

2006-08-21 15:54:57 · answer #8 · answered by Jasmine K 1 · 0 0

Just an example of what your missing out if go with a mutual fund, most funds have this in there portfolio.

http://finance.yahoo.com/q/bc?t=5y&s=PG&l=on&z=m&q=l&c=VUVLX&c=%5EGSPC

2006-08-21 15:10:27 · answer #9 · answered by Grandpa Shark 7 · 0 0

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