05 Jul building financial wealth course
Question Description
Question:
Please share one tip you learned from the mutual fund readings or this content. (2 paragraphs)
READ to help with answer:
For most individual investors (myself included), retirement investing will be done through mutual funds. As you read in chapter 17, mutual funds are a combination of stocks, bonds, and sometimes cash (e.g., U.S. Treasury certificates). You have the ability to purchase small amounts of a wide selection of stocks and bonds. The main advantage is that you’re diversifying across different companies rather than owning just one. Even if you can afford to purchase stocks, say Johnson & Johnson or GE, the fees that brokers charge ($7.95+) may not be worthwhile. In addition, most employer-sponsored retirement plans invest solely in mutual funds.
The key to owning mutual funds, that many investors do not consider, is to diversify the mutual fund investment objectives themselves. When I look at my investments (and note that I’ve been actively investing for 20 years), there are a number of growth, growth & income, international equity, bond, and international bond funds. My investment mix is 50% equity and 50% bond, which means that when you add up the total value (not shown), I have a 50/50 mix of equity mutual funds and bond mutual funds. My total financial asset portfolio is 50/40/10 of equity/bond/cash, when we figure in our checking and emergency savings account. Here is a model portfolio that I found in Benefits magazine: /content/enforced/327868-001019-01-2188-OL1-6380/Model Portfolios.pptx
As you can probably determine by now, equity type mutual funds, which are primarily invested in stocks, are riskier than bond funds. However, some bond funds, for example high-yield funds, are very risky because they primarily invest in “junk” bonds, or lower grade bonds. Here is a visualization of which mutual funds are riskier than others: /content/enforced/327868-001019-01-2188-OL1-6380/Risk Reward Continuum.pptx
I, like many investors, do an annual review of my investments to determine if I want to make any changes. There are very few that I’ve held for 10+ years (e.g., Vanguard SP&500, PIMCO Total Return, QQQ and MSCI EAFE Index). In addition to buying have chosen my investments based on a number of factors, including Money magazine and Kiplinger’s Personal Finance magazine, MarketWatch.com, “Nightly Business Report” television show.
Another important aspect of selecting mutual funds is the internal fees you pay for the fund. Here is an article I wrote that gives the basics on that topic. https://www.herwealth.com/blog/mutual-fund-fees-know-what-paying-for
Again, the key is to pay attention to what you investing in, and more importantly, why you chose the investment in the first place.
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