Investment Vehicles That Drive The Portfolio – Mutual Funds – Chapter 5

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What is a Mutual Fund (MF)?

A Mutual Fund is an index market fund where specific groups of individual securities are pooled together into one fund. If you want exposure to the technology industry, you could purchase an individual stock or you could invest in a mutual fund that has many different technology companies.

Mutual Funds invest in all of the other asset classes: Stocks, Bonds, Options, Futures, Currencies, and Money Market Securities.

These funds are managed by an investment company. The advantages of a Mutual Fund are:

  • Research capabilities
  • Asset allocation
  • Diversification
  • Professional management

Most mutual fund managers have a specific style of management (see my Blog on Equity Management Styles).

Some funds are aggressive. They look for rapid increases in valuation and price appreciation. Others may be more conservative. They are geared toward generating revenue through sales, dividend and interest income.

There are hundreds of Mutual Funds in the marketplace. Most likely, there are several you can choose from that match your financial goals and objectives.

Here are some of the types of mutual funds offered in the market place. For a fuller description, go to the internet or look into the back of my book, “A Beginners Guide to Wealth Building” at the Glossary.

• Aggressive Growth

• Asset Allocation

• Balanced Funds

• Exchange Traded Funds (ETF’s)

• Fixed Income Funds

• Income or Income and Growth

• Index Funds

• International, Global, Emerging, and Developing Markets

• Large Capitalization Funds

• Life Cycle/Target Date Funds (2020, 2030, 2040, 2060 Funds)

• Medium Capitalization Funds

• Private Equity Funds

• Real Estate Investment Trusts (REIT’s)

• Small Capitalization Funds

• Tax Exempt

• Total Return

• U.S. Government securities (Treasury, Notes and Bonds)

Prior to investing in a Mutual Fund

Take a Financial Retreat and read the “Prospectus” of the fund(s) you want to invest in. It always helps to do your homework before you invest.

All Mutual Funds have ratings that give you an idea of their performance history. There are many Mutual Fund Rating Agencies. Each one has their own unique method of ranking Mutual Funds. The two most visible rating agencies are Morningstar and Valueline. There are many other rating agencies like Lipper (https://financial.thomsonreuters.com/en/products/data-analytics/financial-research/lipper-fund-research.html), Zacks (zacks.com), Barron’s (https://www.barrons.com/), Bloomberg (https://www.bloomberg.com/.

Forbes Magazine, Kiplinger’s Newsletters, and the U.S. News can provide you with information on the funds in the marketplace. Which one you choose is your choice.

Your Plan Administrator, Financial Adviser or Investment Professional can tell you who they use as their rating agency. When looking up ratings for a mutual fund, the rating agencies should tell you:

  • What securities are held in the fund?
  • The Mutual Fund’s Professional Management Team:
    • Where they got their investment education? 
    • How many years of experience they have?
    • History of their working background.
    • Years in the investment business.
    • Years with this firm and/or other firms.
    • What their record of accomplishments are in terms of investment performance for the past 2-5-10 year periods (if they have been together that long)?

You can subscribe to Morningstar and Valueline via the internet, or you can go to any public library and look them up.

Here’s a Tip: It is always good to talk with a tax expert when trying to decide what investments are best for you. In fact, get with a financial professional to sit with you and your tax consultant. Together you all can lay out a planned investment strategy that fits you and your financial goals and objectives!

I actually sit with my financial advisor and my tax consultant to ensure we are all on the same page when it comes to my investment plans. It’s all related!

You can always invest directly into a mutual fund or buy individual stock through a brokerage firm, a banking institution, or on-line investment company.

Tomorrow we will talk about Asset Allocation, Diversification, Dollar Cost Averaging and the 8th Wonder of the World, The Magic of Compound Interest.

Love hugs,

Robert L. Woods (a.k.a. R. LaMont W.)

Robert L Woods

Robert L Woods

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About Me

Robert L. Woods is the retired partner of the Institute For Fiduciary Education (www.ifecorp.com) that provided investment seminars for public and private pension funds, endowments and institutional fund managers. He spent 28 years working for the State of California, as a budget and financial analyst which includes 16 years as an Investment Officer for the California State Teachers’ Retirement System (CalSTRS). At CalSTRS, he established it as one of the nation’s first institutional home loan programs with a down payment assistance component. He also spent 13 years on the Board of Trustees for the Sacramento County Employees Retirement System (SCERS). He was a Trustee with the University of California, Davis, Cal Aggie Alumni Association and a member of the Chancellor’s Council on Community & Diversity. He is a Life Member: Phi Beta Sigma Fraternity, Inc., Theta Gamma Sigma Chapter, Sacramento, CA.

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