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Should I buy mutual funds rather than stocks?
A mutual fund is a big pool of money, contributed by thousands of people just like you. The manager of that money invests it in stocks, bonds, or both. Your share in the fund gives you a tiny ownership interest in all the fund’s investments. You’re spreading your money around, which is the right thing to do. There are many different types of funds.
Mutual funds have three big virtues:
1. They make it easy to construct an investment policy. You can match the types of funds with the types of investments you want to hold. An easy call would be international stocks. Instead of hunting for specific foreign companies, you’d buy an international mutual fund. Or say you wanted to bet 10 percent of your money on U.S. stocks that are probably underpriced. Do you know which stocks those are? I don’t. But you can buy a “value” fund that specializes in those kinds of companies. Successful investors start with an investment policy and mutual funds make it easy to carry that policy out.
2. They make it easy to rebalance. If the U.S. stock market goes way up, you’ll want to sell some of your position and invest the proceeds in an asset that has not performed as well — for example, bonds. If you own individual stocks, however, which ones would you sell? The ones that performed the best? A portion of all the companies you own? Who knows? If you own mutual funds, it’s simple — just sell a percentage of your fund shares.
3. They save you from making huge mistakes. If you own a substantial amount of a stock that goes bad, it wrecks your performance. The right mutual funds keep you so well diversified that one bad company won’t get you into trouble. For some people, buying mutual funds goes against the grain. You think that your job is to find “great companies” and hold their stocks forever. But “great companies” don’t necessarily last. The superstars of 1990 were has-beens by 2000.
The leaders in 2000 soon saw their stocks collapse. In hindsight, you can always find stocks with wonderful long-term records. Going forward, however, you can’t know which stocks will be the big winners (or losers) in the decade ahead.
Excerpted from Making the Most of Your Money Now by Jane Bryant Quinn
Copyright 1991, 1997, 2009, by Berrybrook Publishing, Inc. Reprinted by permission of Simon & Schuster, Inc
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Fund investors withdrew $10.38 billion last week
Mutual fund investors are heading for the exits. They withdrew an estimated net of $10.38 billion in the week that ended last Wednesday, July 27. That's more than double the amount they took out just the week before, the Investment Company Institute reported Wednesday. Stocks:The largest...
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Our Behavioral Biases Play a Major Role in Our Investing Success
New research yields some fascinating results into how our behavioral biases affect our investing decisions. by Larry Swedroe
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Money fund assets fall to $2.634T in latest week
NEW YORK — Total U.S. money market mutual fund assets fell $37.53 billion to $2.634 trillion for the week that ended Wednesday, the Investment Company Institute said Thursday.Assets of the nation's retail money market mutual funds rose by $420 million to $919.36 billion, while assets of...
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5 top mid-cap stock mutual funds
Below are five top mid-cap stock mutual funds, as selected by Morningstar. Dan Culloton, a Morningstar analyst, chose the five from among 15 mid-cap funds that the fund researcher considers "Analyst Picks."The Analyst Pick designation signifies Morningstar's recommendation of funds it expects to...
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Movers roundup: Green Mountain Coffee, Anadarko
Among the stock activity stories for Thursday, July 28, from The Associated Press:— Shares of Green Mountain Coffee Roasters Inc., known for its Keurig brewing system, hit a new 52-week high after its third-quarter net income almost tripled, revenue more than doubled and the company boosted...
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Schwab to launch new low-cost index, ETF 401(k)
Losing a third of your retirement savings will get your attention. Unfortunately that's the average hit 401(k) accounts took during the Great Recession as the stock market bottomed in 2009.That reality prompted changes in 401(k) account offerings, such as lower fees, a broader range of investment...
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Ameriprise shares gain after strong 2Q results
NEW YORK — Shares of Ameriprise Financial Inc. rose Thursday after the mutual-fund manager said its operating income rose by 21 percent in the second quarter.THE SPARK: The company, based in Minneapolis, said operating earnings were $328 million, or $1.31 per share, up from $272 million, or...
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Bad Advice From Firms That Know Better
Why do investment experts tout indexing while selling their stock-picking services? by Nathan Hale
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Investors Continue Moving to Passive Management
While active management strategies still have the largest share of the mutual fund industry, passive vehicles have made tremendous strides during the past decade. by Larry Swedroe
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Did John Bogle Get It Wrong?
A recent article on Forbes' Web site claims that John Bogle's argument against active management is flawed. Let's see if that claim holds up to scrutiny. by Larry Swedroe
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