How safe of an investment are mutual funds?

Question

I'm trying to educate myself, a bit. I will be getting a fair chunk of money soon, and I wanna know how to keep from squandering it....and hopefully, earning a bit to boot.

Answer 1

You have a hard job a head.Most funds do well If the market is up and bad if the market is down.I have lost my share of money with mutual funds.The name of the game is risk reward.Little risk, little reward.Let go for ten percent return.The stocks Pepsi Cola.GE,and Con Agra foods. The best Mutual funds The Bridgeway Funds. I would also keep ten percent of my money in silver coins.This ten percent is for inflation and real bad news.Take this information and do your homework.Forbes and Yahoo will help.Set up alerts on the stocks you plan to buy.One last thing good luck you and I will always need it.

Answer 2

First you have to look at the type of mutual fund and then compare it to the ETF (remember to factor in dividends for ETFs because that's your money too) that tracks the same thing. For instance you look at the record of a mutual fund that tracks energy with the ETF XLE which also tracks energy. Then you look at the SP 500 (the bunchmark) which is tracked by some mutual funds (called trackers) and the ETF SPY.

Once you know if a mutual fund or an ETF that tracks the same thing, you can go two routes.

You can play the sector rotation, which means the yearly buying and selling of mutual funds and ETFs. You can do well if you hit the right sector. You can always sell one that is going south and buying one that is rising.

If you don't like keeping tabs, you should know that 80% of all mutual funds do not beat the SP 500 over the long term. That's why there are so many SP 500 tracking mutual funds. That's also where SPY comes into play.

Now how safe are they? They can crash like most of them did in 2000. With ETFs you can put stop losses on your buys. For instance you can buy an ETF at $30 and have the stop loss at $29. If the ETF drops to $29, it triggers a selling action that hopefully goes through (a tighter stop loss would be $29.75 for a $30 stock but this could trigger it too frequently causing you too lose money from buy and sell fees). With mutual funds, the buy and sell price is the price of the mutual fund at the end of the day so there is no way to panic sell out of a mutual fund. The stop loss doesn't work on the opening price so the opening price could drop to $29 or less and not trigger a sale.

Answer 3

Investment in Mutual Funds is not any more safe than investment in Exchange Traded Funds (ETF's) or even stocks of individual companies, provided that you choose good companies to invest in.

The big disadvantage of Mutual Funds is that they charge a yearly fee, regardless of whether they make or loose money for you. You take all the risk, and they get paid regardless of what happens. And when people get paid regardless of what happens, then perhaps they often don't take good care to make sure that nothing bad happens.

I think that investing money on your own and keeping a close eye on your investment is the safest bet. When you have your own money on the line, then you will pay better attention and take better care of it than someone who is dealing with somebody else's money.

End if you want to diversify your investment, then Exchange Traded Funds are the best bet. You can buy and sell shares in these funds just like stocks of individual companies. But these funds are actually made up of dozens and perhaps even hundreds of different companies.

Of course, if you are going to invest in the Stock Market. Then you need to educate yourself a little about the economic cycles and how the Stock Market usually goes up and down in these cycles. Or else you could end up putting your money in when the prices are at a record high and they have nowhere to go but down.

This basic knowledge you need to have regardless of which funds you are investing in. The Mutual Funds go up and down with the stock market just like all other funds and individual stocks.

Perhaps you can start doing your learning and research at this site:
http://www.investopedia.com/

Answer 4

Mutual Funds are great if you pick a good one, but always stand a risk of losing a little too. They are generally safer than regular stocks as mutual funds are simply diversified stocks. This means they have a bunch of different products or services in them. When one is doing bad in you portfolio, the others are usually picking up its slack.

The best way to chose a fumd is to read up on them in the Wall Street Journal or Barron's Weekly. They give lots of good info on picking funds.

You can also set up an appointment with a local brokerage firm, like A.G. Edwards or Edward Jones. They will give you a free appointment and explain how investing works to you in hopes of earning your business. I recommend doing this if it is your first time and you don't know much about investing yet. As you become better, you can always go to online trading and skip your broker.

Good Luck in your future and God Bless!

Answer 5

Mutual funds are an investment tool for those who want to beat the interest rate of the bank, but still want to lower the risk involved in direct investments (such as stocks, bonds, etc.). However, there is no gain without pain, so most mutual funds have some level of a risk. To chose the right mutual fund for you - you need to decide first what is the level of risk you are willing to take, and then examine the composition of investment of different mutual funds. One of the advantages of mutual funds is that they are 'big players' and as such - they have more power to 'set the tone' of the financial assets they invest in, which lowers the risk in comparison to the 'small investor'. The down side of it is that you need to pay commissions to the mutual fund for running your investment.

Answer 6

Investing mutual funds is a best choice. Mutual funds earns high rate of return. Risk is comparatively law. Risk diversification is the main advantage of mutual funds.

Answer 7

Mutual funds are an excellent choice. There are different types;
Index funds: These try to match the ups and downs of the stock market. They outperform about 80% of the mutual funds.
Growth funds: Higher risk in lesser known companies that are expected to do well.
Bond funds: Very low risk.

Go to www.fidelity.com for lots of information. Just don't dump all of your money into one type of mutual fund, especially at one time.