I have mutual funds and not sure what I'm doing.?

Question

We had a financial advisor who signed us up for mutual funds. We pay $140 a month. We have been paying this for the last 3 years. It says on our statements that it has a face value of $27,000. What does that mean? My financial advisor explained this in a very complicated way and I didn't understand how mutual funds work. Can some put them in "Mutual funds for Dummies" terms?

Answer 1

A mutual fund is basically a basket of stocks (or bonds). In a mutual fund, many investors pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into stocks or bonds (and for selecting which stocks or bonds to buy and/or sell). Mutual funds can have different objectives. For example some purchase only large capitalization stocks (that is, very large companies, such as Microsoft, GM, Johnson & Johnson, etc.); others purchase only small capitalization stocks (that is, smaller companies, such as Akamai, American Eagle Outfitters, etc.); others purchase only stocks of foreign companies. There are literally hundreds, if not thousands, of mutual funds, and some are quite specialized (for example, some funds invest only in Japanese stocks).

Probably the biggest advantage to mutual funds is diversification. Mutual funds usually hold dozens, if not hundreds or thousands of different stocks. Diversification means that you're spreading out your money across many different types of stocks. When one investment (for example, stock in Procter & Gamble) is down another (for example, Walmart) might be up. Choosing to diversify your investment holdings reduces your risk tremendously because your money is not all tied to the fate of one or even ten companies, but to dozens and dozens.

It's unclear from your question whether you're investing $140/month in mutual funds, or whether you're paying your advisor $140/month to oversee your investments. If the $140 is going to your advisor, that seems like an awful lot.

What is your financial objective in investing in mutual funds? If it's retirement, you might want to think about dumping your advisor and investing in a target retirement fund. A target retirement fund is aimed at an approximate retirement date (such as 2045), and the mutual fund company automatically adjusts the composition of the fund according to the projected retirement date. For example, with a target date retirement fund geared toward persons retiring in 2045, the the holdings in the fund will become more conservative (less risky) as the target date approaches. The theory is that the closer you get to retirement, the less risk you want to take with the money that you will need to live on after you retire.

One good source that you may wish to consult is vanguard.com. Vanguard is the second or third largest mutual fund company in the country, and it offers a number of target date retirement funds (for example, Target Retirement Fund 2005, 2010, 2015, 2020 . . . up to 2050). Any mutual fund has expenses that it charges the investor (usually called the expense ratio or annual expense ratio), and Vanguard's are among the lowest in the industry. (For example, the expense ratio for the Target Retirement 2045 fund is 0.21%; many mutual funds have expense ratios above 1%.)

Anyway, I suggest you go to the Vanguard website, https://flagship.vanguard.com/VGApp/hnw/HomepageOverview. Click on "Plain Talk Investor Education," then on "General Investment Planning," and then on "Create Your Investment Plan." It'll walk you through a questionaire and give you guidance on what sorts of investments you should be thinking about. (There's no obligation or fee involved with doing this.)

As for the $27,000 on your statements, I think that means your investments have a current value of $27,000. It should be fairly easy to transfer that money to other mutual funds (if you so choose), but you should be aware that there may be tax consequences (capital gains) to doing so. However, if your current mutual funds are not performing well and/or have high expense ratios, it may be in your best interest to get rid of them and invest in something else.

P.S. I don't work for Vanguard, although I do have money invested with them. I just think they have a very efficient and low-cost operation, and that their funds generally have a good performance record.

Answer 2

As a financial advisor, I would agree with the people above that say you should seriously consider firing your advisor. If he/she can't explain something as simple as mutual funds to you in a way you can understand it, you will have many problems for years ahead. I'm not sure what the first person was speaking of about your advisor charging you 6%. I've never heard of any fees coming close to that. One thing I tell my clients though is that it is their money and I expect them to challenge me on anything they don't understand or agree with.
Your question about mutual funds has been answer pretty well above, but I had to sound off on this advisor. Always remember it is your money and don't feel pushed into something you don't understand. I'm not saying it is bad, but you should understand it before you invest.

Answer 3

If you don't understand what you are investing in, then you should probably watch it. It sounds like your financial planner kinda stinks-should probably consider getting another one. Your advisor should assess your risk tolerance and be able to explain to you exactly what you are investing in. There is a lot to know as far as investing in mutual funds-too much I think to put into an answer here. Personally, if you are uncertain, you might want to consider investing in index funds. These type of funds have a very low expense ratios and mimic indexes such as the S&P. While investing here, you can read and learn more about the other funds out there. Best of luck to you.

Answer 4

A mutual fund is where money from many individuals is put together and invested, usually in stocks. The return on that investment is then divided amongst all the participants.

If the face value of your portion is $27,000 then that should mean you could liquidate it for that amount. Unless of course, there were other terms to your agreement. That would actually be pretty good if you have only put in $5400.

Answer 5

If your adviser cannot explain mutual funds to you in a clear and concise manner, then you need to dump him, especially since you are paying him over 6% of your hard earned money for him to invest for you.

Mutual funds are a group of stocks that the fund manager manages. Today, there are more mutual funds available than there are individual stocks.

With a little research, you can find one that beats your manager, while paying less than 1% management fee. Take a look at the fund screener at Fidelity.com or Schwab.com. It's really quite easy, once you've taken the initiative to take your financial life into your own hands.
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Answer 6

Fire the adviser.
Get a 2nd, 3rd & 4th opinion.
Never (ever) invest in anything you don't understand.

BUY THE "Dummies" Series on investing (retirement investing & or Mutual Funds). If you don't.... you'll be making costly mistakes the rest of your life.

Consider managing your portfolio after you've really learned investing. You don't have to... but the savings in commisions will be very large.

Check out;
Vanguard, T.Rowe Price, Schwab Brokerage or Fidelity Brokeradge.

Don't use anyone you've found on Yahoo Answers as an adviser.

Answer 7

It might help if you did some investigating into financial matters so you can be the 'captain of your ship'. Mutual funds have no guarantees except that you pay MER's regardless of whether YOU are making money or not.

A good starting point: The Intelligent Investor by Ben Graham is a classic.

Don't feel bad : schools do not teach what we need to know to be financially successful. (otherwise all the teachers would be themselves more financially well-off.)

Rich Dad, Poor Dad by Robert Kiyosaki (best seller) gives great insight into business - again - not taught in schools.

Answer 8

You have life insurance. Its most likely variable universal where the underlying driver of the insurance is mutual funds. You got duped my friend. Anytime you see the words "face value" you bought insurance. Its probably from Primerica or some other crap company out there.

Please respond with the company, name of the "funds" or product, a ticker symbol if you have one and any other info.

Just use the edit function and ill look back in a few.

Answer 9

$140 a month is way way way too much money to pay to manage a portfolio of only $27K, especially just for picking out mutual funds. I suggest doing a little research, canning your advisor, and selecting your own mutual funds. If you feel you need someone to manage your account, a company like Fidelity can help you for much much much cheaper.

Read a good book, like The Only Guide to a Winning Investment Strategy You'll Ever Need: The Way Smart Money Invests Today by Larry E. Swedroe.

For more good books, see my Amazon list:

http://www.amazon.com/ONLY-THE-BEST-Stock-Market-Investing-Books/lm/R5DVC6XMKXTJM/ref=cm_lm_byauthor_title_full/103-8216915-4405457

Answer 10

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