What are mutual funds?
Investment in mutual funds is one of the most popular investment tools for both individual and professional investors. A mutual fund is a pool of money collected from many investors for the purpose of investing. Then professional money managers, who operate that pools, produce capital gains and-or income by investing some assets for the fund’s investors. There are four types of mutual funds.
- Money market funds
- Bond funds
- Stock funds
- Target date funds
What you need to know about investing in funds?
If the investment in stocks seems too risky, too speculative in gold and too little lucrative savings account, which may find investment in mutual funds. But what is a fund and what types are there? Which key figures help to assess the prospects of a fund and what are the costs of purchasing a fund and managing it? A guidebook.
Advantages of Investment in Mutual Funds
- Your money is managing by experienced and trained professional managers.
- The fund manager diversifies the risk by investing in more than one asset class. In this way when an investment class is unprofitable the other can compensate.
- You don’t have to spend time on research and monitor funds. Investment in mutual funds is really simple, you don’t need to be perfect at finance.
- Liquidity. Mutual funds can be traded daily.
Disadvantages of Investing in Mutual Funds
- Mutual fund manager fees. The salaries of the employees are paid with these fees.
- The judgments and abilities of the manager of the investment fund are very effective on the return on investment.
- Short-term mutual funds could significantly impact your return due to sales commissions and fund manager fees.
- Investment in mutual funds is poor trade execution. Because mutual funds are generally only traded once per day.
Best Mutual Funds
Since 2009, the US index has been experiencing “straight uphill” without significant interruptions. Anyone who has boarded in time, can be happy about rich returns. Experienced investors know that lurking after each high phase, a low – ideal for entry. We therefore look to the long-term development of US equity funds. We carry out our analysis with the consultant software “FVBS professional”. The test scenario assumes a one-time investment of 50,000 euros, the investment period covers the past 20 years. We filter the peer group according to the accumulation of income, index funds are not included. Under these conditions, the largest FVBS peer group of nearly 1100 best mutual funds will melt by a factor of 50 to 20 funds, adjusted for the share class, only seventeen funds remain on the table.
What is a fund and what types of funds are there?
An investment fund does what every investor should necessarily do: he spreads the risk. Because a fund is a collection of different stocks, bonds or real estate. Behind this is the idea that every investment is subject to fluctuations in value. If the investor invests in a bundle of promising securities, some will live up to expectations, others will lag behind. The probability that the investor loses all his savings is relatively low. But as prices fall worldwide, so do the Investment In Mutual Funds. With a bit of luck, and after scrutinizing the metrics the winning securities outweigh them and the investor earns better returns than the savings account.
Because fund companies collect and invest many investors’ money, every shareholder can spread risk with a small sum. A second advantage is the low expenditure of time. Once you have decided on a fund, you do not have to keep track of market prices and developments and come up with new strategies. You leave to henceforth fund managers or automation. Last but not least, it speaks for funds that there is no issuer risk here. This means that if the fund company goes bankrupt, the shareholders are entitled to their assets. The securities are usually sold and the equivalent value reimbursed. Creditors have no access. However, all of these benefits have their price: funds are a relatively expensive investment.
How do I recognize a good fund?
Does a fund yield good returns if it has performed well so far? It’s not that easy to find the right investment. Key figures and ratings offer a little orientation. In addition, investors should closely examine the costs.
Whether prices will rise or fall safely in the future, neither financial analysts nor fund managers know. For all ratings, key figures ( which are important in the fund valuation, read here ) and ratings can always be used only values from the past. That’s the crux of the investment: a good performance over the past year does not necessarily mean that the fund will continue to deliver a good return.
Look carefully at key figures
Success can be a burden. When a fund does well and attracts more attention, more investors are investing. The fund manager suddenly has to manage a larger sum and spread it sensibly, possibly changing the investment strategy – which may not work out as it did before.
The volatility also has some pitfalls as a key figure: a high value indicates a high-value fluctuation, ie more risk. However, value gain and value loss are equally included in the calculation. If a fund value is always very strong and only slightly down, that is a good development – but the volatility is also high.
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