Saturday, 24 October 2020

Retirement Mutual Funds and Stock Mutual Funds - Explained

What Are Retirement Mutual Funds?


Retirement mutual funds, also sometimes called target-date mutual funds, were designed to provide a given amount of income at some specific future date. Often, they are structured to provide immediate diversification into stocks and bonds, in order to build rapid portfolio value. Later, as the member nears retirement age, they move into a more conservative investment blend.
Retirement Mutual Funds and Stock Mutual Funds - Explained

Recent market turmoil and aggressive legislation have made retirement mutual funds more costly, particularly since the first quarter of 2009. Fund management fees have increased sharply, in compensation for decreased participation. Still, these funds are popular amongst middle-income investors with ten to twenty remaining years before they reach retirement age.

When these investment vehicles first became popular, many companies managed retirement funds chose them, for their outstanding performance and relative flexibility. However, in the last couple of years, more and more companies are moving away from them, in favor of more conservative, self-managed funds.

Stock Mutual Funds

Stock mutual funds are mutual funds that primarily invest in stocks (hence the name). As we know, mutual funds invest in a variety of securities which are then combined and divided into shares for investors according to how much they invested in the fund. Let’s take a closer look at stock mutual funds, shall we?

Common stock mutual funds (also known as equity funds) have benefits and drawbacks for investors. First, it should be known that funds that invest primarily or exclusively in stock are in a higher risk class than their money market fund or bond fund counterparts, so if the risk isn’t your thing then you should look elsewhere. The upside to stock funds is that you get the benefits of buying stocks, which have outperformed almost every other investment over time, but you get the added diversification of buying many stocks that the everyday investor simply can’t afford to do.

There are a bunch of different types of stock mutual funds that you can buy, so you should be able to find a stock fund that matches your risk type and investment goals.

For those of you looking to be a little riskier with your investment income in exchange for a good return, you could look into growth stock mutual funds. Growth stock funds invest primarily in funds that have high growth upside, allowing the investors to benefit from the capital gains (appreciation in the stock’s value). There are varying levels of growth funds from lower-risk growth funds to aggressive growth funds so be sure to understand which you are investing in before you hand over your cash.

You also have the option to invest in sector funds which are stock funds that focus primarily on a single sector of the market such as tech, energy, or health care. As we learned during the dot com era, you can make a great deal of money by focusing on a single sector of the market, but you can also lose a great deal of money by focusing on a single sector as well (see the dot com bubble collapse of the early ’00s). If you were to invest in this type of fund it would make sense to invest in a few of them to diversify your holdings.

You can also invest in a more specific type of sector funds such as gold-stock mutual funds which consist of precious metals sector stocks, but only those that focus on gold investing. Additionally, you can invest in an entire index with stock index mutual funds, for those who want to spread the risk even more.

You can also invest in stock mutual funds that focus on a particular size of stock, these are known as cap funds. Market cap (short market capitalization) is a gauge of the total worth of a company and is calculated simply by the value of the common stock times the number of shares outstanding. Typically the larger the market cap the more stable the company, so large-cap mutual funds tend to hold less risk than small-cap or micro-cap funds.

Stock market mutual funds have a lot of advantages and disadvantages so be sure you do your homework before you buy. As always consult with your financial advisor to be sure that stock funds are appropriate for your investment portfolio and ask for help determining which stock funds are right for you.


Uncovering The Hidden Costs Of Mutual Funds

Think you know exactly how much your mutual funds are costing you each year? Think again. The unfortunate truth is that many funds come packed with hidden mutual fund fees, fees that most consumers have no idea exist.

But you want to be an educated consumer, right? If that’s the case, you’ll take the extra time to compare mutual fund fees and find the hidden costs of your funds. And depending on how high these costs are, you might even move your dollars to funds that don’t have quite so many of these secret fees.

Mutual funds come with many upfront fees, fees that are freely advertised by your fund company. These include management and redemption fees. There’s nothing too mysterious about these fees.

But then there are the fees that are rather mysterious, the brokerage fees. Simply put, these are fees that investors are charged when their fund managers buy and sell securities. These fees are not included in the expense ratio that funds distribute to their investors.

This seems a bit fishy, but it’s how mutual funds have long conducted business. It does make it difficult, though, for those consumers who like to shop around to make sure that they are investing their money in mutual funds that charge the least amount of operating and management fees.
As one of these conscientious investors, how to you determine these costs?

How do you make sure that you’re not paying too much in fees to your mutual fund?

You’ll have to read a document called the Statement of Additional Information. All mutual funds are required to have one of these. It lists the transaction costs – all of them – that funds have charged in prior years. You might be surprised at how much some of these funds charge.

Finding this statement can take a bit of hunting. You can visit your mutual fund’s Web site and poke around. It might be listed there. But if you’d like to avoid the frustration of a possibly fruitless search, call your mutual fund’s customer service line. The person on the other end of the line should be able to tell you how to get a copy of your fund’s Statement of Additional Information.

No one likes to pay the operating fees that mutual funds charge. They’re a fact of life, though. What you don’t want, though, is to be paying hidden fees that you don’t even know about. These fees can add up to some hefty dollar amounts over the years.


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