David Lerner Associates: Mutual Fund Fundamentals

David Lerner Associates: Mutual Fund Fundamentals

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We often hear that an investment portfolio should include a mutual fund. But what exactly is a mutual fund?

A mutual fund pools the money of several investors to acquire safety and securities. By investing in the fund, you'll own part of the complete portfolio of safety and securities, which could possibly be anywhere from a few to hundreds of stocks. This offers you with a convenient method to get immediate diversification that would be tougher to achieve by yourself.

Sorts of mutual funds

There are many mutual funds to select from. Two of the most typical kinds are stock mutual funds and bond mutual funds.

A stock fund invests in common stocks issued by US and/or worldwide companies. Funds are usually named and identified according to investment style or objective, which could be mentioned in various ways. For instance, some stock mutual funds buy stocks in businesses believed to have potential for long-term growth in share price. Other stock mutual funds seek current income by focusing on firms that pay dividends. Sector funds acquire stocks in a certain sector, such as technology or health care. Still other mutual funds might buy stocks based upon the size of the business (e.g., stocks of large, mid-size, or small firms).

Although the name of a stock mutual fund usually offers insight right into its investment style and objective, it is essential not to rely upon the name alone in identifying whether a certain fund is just what you wish. The fund prospectus is like an owner's handbook and also has information about the sort of financial investment style that the managers(s) utilize, and the type of stocks that the fund will buy.

Note: Prior to buying any kind of mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which are discussed in the prospectus available from the fund. Read the prospectus carefully before investing.

A bond fund is composed of debt instruments that governments or firms issue to raise capital. They are designed to provide investors with interest income in the form of routinely scheduled dividends. If you purchased individual bonds, you would need to be concerned with their maturity days and the reinvestment of your funds. Purchasing shares of a bond fund eases you of these issues; the fund manager handles them for you.

Both funds are primarily classified according to the issuers of the bonds in the fund's portfolio and/or to the regard to the bonds. A money market fund buys extremely short-term debt instruments and is often used as a place to put cash money, short term, until it is required somewhere else. (Though a cash market fund attempts to keep a $1 per share worth, there is no guarantee it will consistently do so, and also it is feasible to lose money investing in a money market fund.) Index funds attempt to duplicate a standardized, broad-based index such as the Standard & Poor's 500 (S&P 500) stock index or Moody's bond index by holding a portfolio of the very same securities used by the index in an attempt to match the index's performance as closely as possible.

What are the advantages of purchasing a mutual fund?

Diversification: A lot of mutual funds own dozens or even hundreds of securities. The managers typically disperse the fund's assets over more than one kind of investment (e.g., both stocks and bonds, or stocks from a variety of industries). This exposes you to less potential risk than acquiring simply a few individual securities. If some of the fund's holdings perform poorly, they may be balanced out by others doing well (though diversification cannot guarantee a profit or ensure against a loss).

Professional money management: When you buy shares in an actively managed mutual fund, part of what you pay for is the fund supervisor's experience. The manager assesses hundreds of securities (both existing and contemplated holdings) and makes decisions on what as well as when to buy and sell.

Small investment amounts: Depending upon fund rules, you can open up an account and make subsequent contributions with a very small preliminary investment. You can even set up automatic investments through a transfer of funds from your bank account.

Liquidity: You can convert your mutual fund investment into cash (i.e., redeem your shares) by making a request to the fund company in writing, over the phone, or online on the Internet on any business day.

Of course, mutual funds are not guaranteed investments. The price of all mutual fund shares can change daily, as well as you'll receive the existing value of your shares when you sell-- which may be more or less than you paid. All investing entails risk, including the possible loss of principal, and there could be no assurance that any kind of investing strategy will achieve success.

Deciding on a fund

Selecting a mutual fund to invest in calls for more than choosing a fund from the Top 10 list of the best performers. Deciding on a mutual fund calls for cautious thinking about numerous aspects. One of the most vital of these to think about is to include your investment objectives, risk tolerance, and time horizon.

Spend some time considering these elements, then do as much research as you can. Many financial magazines and internet sites are good sources of information to use in an initial screen for suitable mutual funds.

Review the fund prospectus. It offers a good deal of information that you'll want to know regarding the fund, such as the fund's financial investment objective and style, and the fund's expenditures. To obtain a prospectus, call the mutual fund company directly, or go on the internet to the company's web site to download one.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Some of this material has been provided by Broadridge Investor Communications Solutions, Inc.





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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website: http://www.davidlerner.com

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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