Brigitte Werfel February 12, 2020 Mutual Fund
The recent explosion of an oil rig in the Gulf and the resulting chaos and environmental damage tells you that any company can all of a sudden be exposed to dramatic unforeseen risk. In this case it was BP. Mutual Funds can also possess much more risk than you thought you were encountering.
Because these funds are not actively managed, you cannot weed out under-performing securities from the overall index. This can and does have a detrimental effect on your returns. If market conditions warrant action, index funds usually will not be altered unless it happens to coincide with their regular re-balancing schedule.
Lipper Inc ranks its funds based on prior performance. The worse the performance the higher the rating to indicate a larger risk, the lower the rating the better the performance has been. The total return, preservation, consistency of the return, its tax efficiency and the expense are all factored in to determine the funds actual risks. This method should be more accurate in determining the actual risk and profit factor involved in the mutual fund.
Before you invest in a fund, look at the fees the company charges. You will notice these fees in the prospectus. If you are ambitious, you will be able to find the fee structure online. Always go with a fund that has a low expense ratio and stay away from 12b-fees. When buying mutual funds you will have various types of choose from. There are money market funds, municipal bond funds, corporate bond funds, mortgage-backed securities funds, U.S. Government bond funds, stock funds, and index funds.
Mutual fund ratings while they can be accurate at times are not something to base your future investments on alone. If you rely on these alone you may as be blind folded to pick your investments. If you are into investments but you do not want to invest in one kind of stock or another, perhaps you would rather invest in a mutual fund. With mutual funds you can diversify, meaning you can buy more than one kind of stock. By diversifying you reduce the risks without losing your returns.
Watch the indexes, and watch your funds if they have symbols. Fixed Funds Fixed Funds, sometimes called Guaranteed Funds, are known for steady, predictable growth in the long term. They carry Guaranteed Interest Contracts underwritten by insurance companies, and because of that fact are commonly considered very low risk funds. This includes the additional protection of the funds from garnishment or attachment by creditors or assigned to anyone else, except in the case of domestic relations court cases dealing with divorce decree or child support orders QDROs; i e , qualified domestic relations orders .
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