[JahJahBinks]

I am thinking about investing in mutual funds lately. Mutual funds were considered an investment that has better returns than saving/bonds and less risk than stocks, is it still true today? What are the cons of mutual funds? My plan is to do short-term investment, (6 months to 1-2 years), what do you suggest?

 

[zowie]

Quote:

Originally Posted by JahJahBinks I am thinking about investing in mutual funds lately. Mutual funds were considered an investment that has better returns than saving/bonds and less risk than stocks, is it still true today? What are the cons of mutual funds?

Uh-uh. Your question indicates you don't understand securities or the markets and are not ready to make investment decisions. Trying to be helpful here, not insulting; everyone had to start someplace.

Try reading a classic book that has been reprinted many times called "How to Buy Stocks" which is not about how to SELECT stocks but how the markets work, and follow that up with "Bogle on Mutual Funds." While you're reading those, read the first page of each section of the WSJ every day, and read further inside if there's anything you're interested in.

There are literally scores of good investment books -- I'm sure people will recommend their favorites -- but I'd start with those above.

 

[JahJahBinks]

I did some research on the internet and found stuff like this one:

http://www.aiminvestments.com/pdf/GD...0026b4bf0aRCRD

 

[plus_c]

My advice: find a certified financial adviser. Absolutely no offense meant (gotta start somewhere), but your question indicates you don't have a handle on how to handle the risk that you take on with investing, or what your goals for investing are. In general, the conventional wisdom is that the sooner you want to use your money, the less risky you want to be. 6 months to two years? That's CD or HSBCdirect account territory.

One book I would recommend that you get is "Personal Financial Planning", by G. Victor Hallman. I took his class at Wharton - he's not that interesting a professor, but his book is full of great information on coming up with a cohesive strategy on how to manage your money. I also recommend "Stocks for the Long Run", by Jeremy Siegel.

Investment isn't just a short-term isolated game. Your investment strategy should vary depending on your goals and the level of risk that you're willing to tolerate. If you need that money in two years to pay bills or buy a house or something important like that, DO NOT put it in the stock market, because you'll be up a creek without a paddle if the market turns on you. Play in the stock market with money that you won't be needing to use for routine expenses for quite a long time. Basically, before you invest, ask yourself: What do I want to use this money for? When am I going to need this money? Will I be able to sleep at night if the market has a few bad days?

 

[Oski]

Quote:

Originally Posted by zowie Uh-uh. Your question indicates you don't understand securities or the markets and are not ready to make investment decisions. Trying to be helpful here, not insulting; everyone had to start someplace.

I don't really see anything wrong with what JahJah had said, equity mutual funds in general should have a higher yield than bonds/savings, and individual/small basket of stocks will have a higher beta than a diversified mutual fund.

Otherwise the suggestions are good to read up on some materials. Otherwise, if you just want to have an investment in the overall market, you might want to consider an index fund that tracks the S&P500 (which is the 500 largest company by capitalization, which is also a good proxy for the general stock market). Find a fund with very low costs/load, such as Vangard. Historically the S&P500 has returned an annual yield of about 12.5% and about 80% of the actively managed mutual funds do not beat it long term.

A finance professor of mine, after covering various portfolio allocation models such as the Capital Asset Pricing Model and Arbitrage Pricing Theory, essentially said to just invest in index funds. Good luck.

 

[JahJahBinks]

A co-worker at my place who retired last year also suggested Index Funds to me when we talked about investment and retirement stuff. The difference between us is that he retired, and I have about 40 more years before retirement.

 

[Talonz]

Quote:

Originally Posted by JahJahBinks My plan is to do short-term investment, (6 months to 1-2 years), what do you suggest?

I would not suggest a mutual fund. You may have to pay a fee to get in, a fee to get out, and one for only holding it for a short amount of time.

 

[Oski]

Quote:

Originally Posted by JahJahBinks What are the cons of mutual funds? My plan is to do short-term investment, (6 months to 1-2 years), what do you suggest?

Actually I may have jumped the gun a bit with my previous post. What is it that you want to accomplish from your "short-term" investment? Is it capital gains, capital preservation, cash flow, etc.? Are you saving up to buy something like a house, car, education, or do you just want to make sure you are getting decent returns and not erode your money due to inflation and such?

 

[zowie]

Quote:

Originally Posted by Oski I don't really see anything wrong with what JahJah had said, equity mutual funds in general should have a higher yield than bonds/savings, and individual/small basket of stocks will have a higher beta than a diversified mutual fund.

I think you mean return, not yield. Over what period of time? Short term, that's not a fair generalization. What about a mutual fund that holds bonds or commodities or single-sector equities? How much does he have to invest? Does he have high interest loans that could be paid down instead? Can he afford to lose principal? Does he have a few months living expense set aside in case of unemployment or emergency? Are you sure a basket of 8 low-beta stocks like utlitities necessarily would have a higher beta than a lot of diversified growth-oriented funds? Why/not choose ETFs over funds? How do loads work? What are reasonable annual fees and expenses? Etcetera ad nauseum.

I realize you probably understand all of what I'm saying, but it did not seem that the OP even knows to ask these questions let alone find and balance the answers. See his other recent thread asking what is it they're talking about when the Fed raises interest rates. And so I didn't think he's ready to make decisions about committing any significant amounts of money to anything, even with the highly reliable advice posted by anonymous complete strangers at an audio forum.

Including my own.

I concur generally with plus c's post.

 

[Uncle Erik]

How old are you? No offense intended, but if you're younger (say 25 or under) you should be looking at long-term investments.

A short term (<12 month) investment in mutual funds is not a good idea. You'll get hit with short-term capital gains AND pay a bunch of fees. Unless the fund really hits the jackpot, fees and taxes will eat what you earn.

If you've got some cash right now you don't know what to do with, go roll it into a CD at your bank or open up a good savings account- I like ING's Orange Savings. Your cash will be safe in a CD or savings. Use the time to read up on investing. Personally, I like index funds and some individual stocks for investments in securities. And there are better investments out there than securities, but that's another ball of wax.

And do you have any high-interest unsecured debt, like credit cards? You can actually end up ahead by paying that down/off instead of investing it. That's because the debt interest would grow faster than your returns, and say, 36 months down the road, you'll have more money by eliminating the debt.

This is a complex field. Put your money where it's safe and really do your homework before going further.

 

[NiceCans]

Quote:

Originally Posted by JahJahBinks I am thinking about investing in mutual funds lately.

NOOOOOOooooooo Jah Jah! DON'T DO IT !!!!






invest in HEADPHONES instead

 

[Alwayswantmore]

Quote:

Originally Posted by zowie Uh-uh. Your question indicates you don't understand securities or the markets and are not ready to make investment decisions. Trying to be helpful here, not insulting; everyone had to start someplace. Try reading a classic book that has been reprinted many times called "How to Buy Stocks" which is not about how to SELECT stocks but how the markets work, and follow that up with "Bogle on Mutual Funds." While you're reading those, read the first page of each section of the WSJ every day, and read further inside if there's anything you're interested in. There are literally scores of good investment books -- I'm sure people will recommend their favorites -- but I'd start with those above.

May not be what you want to hear, but zowie is offering good advice. IMO, you should only invest in investments you understand.

 

[JahJahBinks]

It's not offense, I have gotten many divine advice from people at work regardless of their age.

Right now I have money in Paypal, its interest varies and right now is at 4.5%. I once thought about buying government bond, interest was like 5.8%, but you had to wait for 5 years to withdraw it w/o penalty, whereas paypal works like a checking account, you can take money out whenever you want, but the only disadvantage is that it is not insured or guaranteed by FDIC.

 

[Oski]

Quote:

Originally Posted by JahJahBinks Right now I have money in Paypal, its interest varies and right now is at 4.5%. I once thought about buying government bond, interest was like 5.8%, but you had to wait for 5 years to withdraw it w/o penalty, whereas paypal works like a checking account, you can take money out whenever you want, but the only disadvantage is that it is not insured or guaranteed by FDIC.

Well, if it's FDIC insured you are looking for, then you should look into CDs (no not the audio version...Certificates of Deposit). It's like a savings account, but your funds are locked in for periods of 3, 6, 12, 18 months etc. Right now you should be able to find 1 year CDs at around 5.0% APY. These will also work within your short term outlook.

 

[plus_c]

CDs are a good option. If you're looking for more flexibility than that, HSBCdirect and INGdirect have savings accounts that are yielding over 4% right now, withdraw whenever you want.

If you want that kind of flexibility, mutual funds are not what you're looking for. They charge fees every time you sell shares - very much designed for those looking to park their money away for looooong stretches of time.