My Personal Finance Blog

If you are interested in investment opportunities but are not sure where to start, a mutual fund might be a good option for you. A mutual fund is a way to invest along with a group of other people. Everyone shares the gains and losses. Group investing allows you to make investments that you might not be able to make on your own. It is professionally managed, which is another benefit for the novice investor. After determining that this form of investing is right for you, the only thing left to do is determine the best mutual funds.

Most people have realized that caution must be used when investing in this sluggish, fickle economy. A little research and common sense will help to steer you in the right direction. The best mutual funds in the upcoming year might be things such as gold and other natural resources. The price of gold has been steadily rising for years and seems to be a safe bet for guaranteed returns. Real estate could even be a good bet in some markets. This will vary of course by location. After prices bottom out, they inevitably rise again. This means excellent profits for you.

They key to securing your financial future through money markets is diversifying. This has been stated so often that it has becoming almost cliché. Nevertheless, it is still a true statement. Diversification in an unpredictable atmosphere means that you will never be caught with all of your eggs in one basket. Diversification assists in limiting the effects of any losses in your portfolio. Look for different stable areas to balance your assets. When properly balanced, adding a few high risk funds might prove to be the best mutual funds in your diversified portfolio.

Mutual funds are an easy way to invest money. The best mutual funds will be the ones which are the most cost effective, and the ones providing the largest profits. People have begun to seek regular funds as a relatively safe alternative to other stock market investments. Funds offer liquidity, making accessing your money easy and might be exactly what you are looking for.

For most people the best investments for 2011 will be in the form of the best bond funds and stock funds from the best fund companies in America. Here’s where we go all the way and explain these best investments and why they are getting even better in 2011. Then, we get specific about the best funds and name two fund companies.

Mutual funds were designed with one primary objective in mind: to be the best investments for average folks who wanted to share the wealth produced by stocks and bonds. In 2011 and beyond the best of these funds will still be your best investments and they will offer both diversification and professional management at low cost to you as an investor. All fund companies offer average investors a small piece of a large diversified stock or bond portfolio – easy to invest in and easy to cash in – usually at a reasonable cost.

The biggest and best fund companies offer well over 100 funds to choose from; and some of their very best funds will cost very little to invest in for 2011 and beyond. Due to heavy competition between fund companies, things have gotten even better for average investors. Well, at least for those who know where to find the best investments, funds and fund companies.

For 40 years I’ve followed the fund companies in search of the best investments. My 4 criteria: quality and variety of funds offered, performance, service to customers, and the cost of investing. I’ve found that dozens of the larger fund companies can make claims and boast about being the best in the first 3 areas. But try as they may, fund companies can’t hide the investor’s cost of investing – which has increased for many funds. The good news for today’s investors is that the two biggest fund companies in America will be competing like crazy for your business in 2011 and beyond with a low cost of investing; especially in what I consider to be their best funds, your best investments.

Before I get specific and name names, imagine being a financial planner (like I was for 20 years) competing as follows. In the best investments in stock funds I could offer my clients with $10,000 to invest: $500 comes off the top to pay for sales charges and my commission; and about $150 of your money goes for management and other expenses EACH YEAR. Now compare this to the cost of buying and owning the best funds from the biggest (and in my opinion best) fund companies in America in 2011: Vanguard and Fidelity. The total cost to buy is zero, because there are no sales charges. Yearly expenses can be about $50 for a $10,000 investment, sometimes less than HALF that.

The best investments in both bond and stock funds for most people are INDEX FUNDS. I call them the best funds because they really don’t have bad years relative to the competition, and they have the lowest costs. Index funds simply invest in line with their benchmark – an index. They don’t waste big bucks trying to do what few funds have ever done: beat the indexes consistently. Fidelity and Vanguard both offer stock and bond index funds and pass the savings on to you. Here are the best they offer for 2011 and beyond.

The best investments in bond funds for 2011 are short-term and intermediate-term bond index funds vs. long-term funds. The latter pay higher interest income, but are subject to much greater losses if interest rates turn around and head north during the year. The best investments in stock funds for 2011 are stock index funds with the number 500 in their name, referring to the S&P 500 Stock Index. These funds invest your money in 500 or so of the largest and best-known companies in America. This includes Exxon, Apple, Microsoft and General Electric as their largest holdings going into 2011.

So, there you have the whole package. The best fund companies offering the best investments for 2011 in the form of the best funds they offer… all in 500 words, or more. Plus, now you know how to save $500 up front the next time you invest $10,000 in mutual funds.

As a beginner one would be very excited to know the way the procedures of investment works. This excitement can work for the future so always put this excitement in understanding the smart tricks so that you can be an excellent investor. Having guidance is the primary need of a beginner, so always consult people who have knowledge in the field of investments. Consulting a professional would be the best you can think of, as he can guide you all your way to the best and effective investments. If you have a habit of regular withdrawals and have enough liquidity with good anticipations, go for the money market accounts (MMA). The money here would be insured.

Stock investment completely depends on the investors. If they agree to manage to reap their investment rates, they can reach sky with that approach. It is all about being alert and keeps a sheer watch on the markets. People good with analyzing the statement of finance have a better scope in markets during market hours. Value investing would not be a good alternative for people concerned with capital interests. Growth stocks can be beneficial. Mutual funds could be an appropriate alternative for people who like to invest the money and forget. You will get the desired money after a period of some years. One can get interest incomes regularly with bonds if he/she chooses them for investing.

Beginners can indulge in alternative investments like commodities and trading can enhance your portfolio and can build your relation with the traders. It is a great option for the experienced investors.

Where is the US economy headed?

No doubt, recovery expectations have risen over the past few months, mostly on the back of stimulus packages and proactive stance of the government. But this doesn’t seem to be a long term fix to the situation as debt is rising and soon it will build up as a mountain of worries. Everyone is aware of the situation but all efforts are being made to keep the economy running in the shorter term.

Is the Debt Problem Really Intense in US?

It’s really hard to say if the economy will collapse in 2011, but it’s almost certain that if the government continues to spend on temporary relief packages to stimulate the economy, the mountain of increasing debt will lead to the biggest financial disaster ever witnessed by mankind. At present US government, businesses nationwide and American consumers are all sailing on the same boat, which is headed for an iceberg. If you do not agree to what is being said here, then read on to know hard facts.

Will the Housing Market Recover in 2011?

Mortgage defaults are still appearing fresh in the market, keeping the housing prices near record lows. Defaults have been record high and still increasing since mid 2007. What if housing prices fail to show considerable recovery going into 2011? Well, many economists are of the view that housing market may not show any sign of improvement till the end of next year. Now, this could result in a second wave of foreclosures, which will make the cracks much wider and hopes of recovery will be shattered for long. Is Consumer Spend and Employment Situation still a Threat? Ideally, a recession is a temporary blip in economic activity, but this time around it has stayed much longer. This is evident from the employment situation, as the unemployment data is not improving despite so much quantitative and qualitative easing by the monetary authorities. Latest stimulus package has provided a support to the financial markets as investors believe that this money will help in creating jobs in the system, and as an end result consumer spend will once again pick up. But, so far things have not worked as they were expected by the Fed, and same could be the case yet again.

Are the Americans Broke?

There is no hiding from the fact that more and more American citizens are filing for personal bankruptcy. In such scenarios, how can authorities expect the demand to surface again, when people are high on debt?
America simply needs jobs, and it needs them at a much higher pace than anticipated. The recent recession, which is now officially over, may have been an indicator of an upcoming depression in the system, as it was much more than what a recession is. Now, if we again slip back to negative growth, which cannot be ruled out so early, then the economic chaos will spread its wings globally, and the world will spend a decade with a flat growth.

Investors and traders should remain prepared such financial turmoil anytime soon. Even saving up on brokerage costs, by opting for cheap online discount brokers, can help in maximizing returns in such uncertain times.

The main objective of investing is to grow wealth.

There are many forms of investments: It ranges from the plain vanilla deposits (savings accounts, fixed deposits, insurance, endowments, CPF, SRS) to stocks, bonds, T-bills, unit trusts, ETFs, real estate; for some more adventurous hedge funds, derivatives (options, warrants, futures), forex, and even to the more unique like art, watches, wine and physical commodities.

This list is definitely not exhaustive, but it illustrates the importance of portfolio management towards investing.

Therefore, the important first, and often neglected, step towards investing is developing an investment policy.

Investment Policy Statement (IPS)

It should contain the following:

Purpose: What is the money intended for? Time horizon: When will the money be needed? Risk – Return expectation: What is your risk appetite? Benchmark: What is the performance going to be reviewed against? Any other unique considerations? Like tax considerations, legal constrains, religious restrictions, unique preferences, etc.

Having an IPS commits to memory the financial goal of the investment, provides a road map, moderates the expectations, instills discipline for a long term approach and provides a scale to monitor performance.

The next step is to determine the asset allocation that will best suit the IPS requirements.

Asset Allocation

A common theoretical method used to plan is the modeling concept of using historical returns to determine the assets risk based on its statistical deviation and correlation to other assets.

The justification is that different asset classes performance varies relative to each other, correlation is a measure of that difference. It is difficult to time which asset is going to perform the best, therefore, diversification taking correlation into consideration, reduces overall risk given a level of expected return. Sometimes adding a risky asset like commodities into a portfolio of stocks/bonds might increase returns and in fact reduce the risk because the correlation of commodities to stocks/bonds is low.

Diversification not only takes on the form of asset classes but geographical (International, Regional) as well.

According to research, asset allocation determines 90% of the returns achieved for a portfolio as compared to individual security selection and timing.

Next is to consider the investment strategy.

Strategies

The 2 main types are passive and active strategies.
Passive strategies involve an approach aimed at minimizing transaction costs. Active strategies involve attempting on market timing to maximize returns.

For most small retail investors, the passive strategy would be recommended because the opportunity cost in terms of time spent to beat the market in addition to hefty transaction costs will result in lower returns.

The common passive approach uses a buy and hold strategy as well as dollar cost averaging.

Next is the actual selection.

Security Selection

Individual asset classes has various methods and models of analysis.

Top-down approach of economic, industry and company analysis Dividend Discount Model, Capital Asset Pricing Model, Risk Premium Financial statement analysis using key financial ratios Technical analysis, contrarian, smart money trends Cost recovery, similar transaction comparison, return of income approach Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index

Finally, to close the loop for the process, is the continuous monitoring and re-balancing.

Performance Measurement

The benchmark in the IPS will used to gauge the performance of the portfolio and determine if any adjustments are needed.

The IPS will also need to be reviewed in regards to changes in the market conditions and personal circumstances.

Investing helps to meet future financial objectives, learning about investing improves the chances.