Advantages of Mutual Funds

This edition of our investment blog is to help investors understand the advantages of using our best mutual fund in the investment universe. Not all mutual funds are created equal and while excellent returns are the goal, if expenses are too high, the return may not seem as wonderful as it looks on paper. Low risk mutual funds and/or private wealth management funds with low costs and consistently high returns may offer exactly what your portfolio needs. Most people just need a bit of help finding their best mutual fund within their own criteria.

Advantages of Mutual Funds – Defining Your Goals

Investing is a bit like taking a trip. Before you leave, you program your GPS to get you from Point A to Point B. Investing is the same. Before you write your check for your mutual fund, you need to know what your financial goal or asset allocation for the investment is. Are you creating your retirement nest egg or using it as a vehicle to fund your children’s college? Are you looking for income or long-term gains? How long do you plan to hold the fund? Low risk mutual funds used for the short-term will be much different than those used for the long-term. We make sure your asset management strategies and the investment management solutions align perfectly to ensure your goals are achieved.

Advantages of Mutual Funds and Risk Tolerance

Every investor has a line in the sand. This theoretical “line in the sand” has two sides. As you approach the line, you are comfortable how the fund is performing even if it might have a loss, but the closer you get to it, the more nervous you become about those losses. This line is your risk tolerance. The old saying, “No risk, no reward,” is true when investing. The safer the investment is, the lower the return on investment will be. Your best mutual fund will meet your risk tolerance while making you money. We only place you in low volatility mutual funds that meet the tactical asset allocation goals we’ve set together and fit your risk tolerance level. Your low risk mutual funds should make you money, not make you nervous.

Past Performance Doesn’t Mean Future Results in Even Your Best Mutual Fund

Every investment, even your best mutual fund, has the disclaimer “Past performance is not an indicator of future returns.” Many brokers will try to sell a fund with a stellar short-term return but has dismal returns for the last 5 and 10 years. Low risk mutual funds, such as some of the funds we recommend investors, show a positive performance in years when other funds lose money. Pay particular attention to how a fund performed in 2001, 2002, 2008, 2009 and 2011, which were the years that many mutual funds had negative returns of 10-50%. Your best mutual fund will not only outperform in boom years, it will also avoid losses or even make you money in tough years when other funds lose big. Your best mutual fund also has a fund manager who not only understands tactical asset allocation models to make investors’ money, but also has proven track record with the fund.

Advantages of Mutual Funds and Fees

Unfortunately, even your best mutual fund charges fees. There are numerous fees that can be associated with mutual funds, but one of the sneakiest is the 12b-1 fee, which is embedded in the share price of the fund and can range from 0.25 – 1.0 percent of the fund’s total assets. The 12b-1 fee is used for marketing and other activities connected to distributing the fund’s shares. Your best mutual fund doesn’t have high 12b-1 fees. It doesn’t need to market itself because it’s just that good. Your best mutual funds that we recommend are low risk mutual funds have some of the most value-added fees in the marketplace.

Other fees include load fees which are charged either when the investment is made (a front end load) or when the funds are distributed (a back end load). Mutual funds with front end loads generally have a break in the fee when a sizable initial deposit is made, generally $25,000 or higher. This can cut the fees up to 50 percent. Back end loads are generally assessed for a specific period of time (i.e., seven years) with a decreasing fee the longer the investment is held. Once the time period has been reached, funds can be distributed without a fee.

Get an expert to evaluate your mutual funds to show you their risks and compare them to some other possibilities that may work well with your investment strategies, contact us and we can show you a few pretty interesting things; like funds that did not lose money in 2008.

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