Are Mutual Funds For Me?
Mutual funds are collective investments that pool money from several investors to buy stocks, bonds, money market instruments, and various other securities. There are three basic types: Open-end funds, Closed-end funds, and Unit Investment Trusts (UITs). This article will focus directly on the advantages and disadvantages of mutual funds as a whole.
There has been a huge surge of interest in mutual funds since their beginning due to the many advantages they bring about.
- Extensive diversification, which means an investor is able to get instant access to tons of individual stocks or bonds with a low minimum investment, is one of them.
- Daily liquidity is another strong advantage. If you want to sell your mutual fund, the proceeds are available the day after you sell the fund.
- Government oversight and transparency tops the list as well with mutual fund holdings being publicly available to investors (keep in mind there are reporting delays). Mutual fund companies are also required to maintain performance track records for each mutual fund and have them audited for accuracy, which means there is no question as to the validity of the returns being stated.
- There is an increased selection of investments available to you when using mutual funds.
- Professional management and convenience also make the list. Systematic investing and withdrawals can be set up, and an investor can also have capital gains and dividends reinvested automatically into their mutual fund without a load or extra fees.
- Safety is another reason investors look to mutual funds. If a mutual fund company goes under, the mutual fund shareholders receive an amount of cash equal to their portion of ownership in the fund.
Of course there have also been disadvantages cited regarding mutual funds, and so in the spirit of fairness and completeness, we will share those with you as well.
- High capital gains are one of the frequent gripes with regard to mutual funds. However, not all mutual funds make annual capital gains, and many mutual funds are low-turnover funds that do not make capital gains distributions on an annual basis. Keep in mind there are strategies to avoid capital gains such as tax-loss harvesting, and that capital gains does not even apply to retirement plans.
- High sales charges are also on the list. However there are a ton of “no-load mutual funds” that do not participate in sales charges.
- Fees. There are fees associated with investing in a mutual fund, however many mutual fund companies cap their total fund operating expenses by waiving or limiting their fees and assuming the various expenses of the fund. For example, our firm has a no – load conservative allocation mutual fund, the Geier Strategic Total Return Fund (GAMTX) with total fund operating expenses not exceeding 1.95% (that figure includes the 1.10% management fee) due to making the decision to limit fees for investors. This information can be found in the prospectus.
Although mutual funds remain one of the most popular investment vehicles of our time, it is clear there is a ton of information available to the investor to research and process prior to investing in one. You should ensure you have done your homework by reading the proper literature such as the prospectus, and reviewing the performance available as well as the background of the fund manager prior to investing. Most of this information can be found right on the fund’s web site or by visiting a popular site such as Morningstar.
The views expressed in this article are as of 6/20/111, and are not intended as a forecast or as investment recommendations. Information provided as to the Fund’s holdings, sector weightings, number of holdings, performance and expense ratios are as of dates described in the article are subject to change at any time.
Investments in real estate investment trusts (REITs) and real –estate related securities involve special risks associated with an investment in real estate, such as limited liquidity and interest rate risks and may be more volatile than other securities. In addition, the value of REITs and other real estate – related investments is sensitive to changes in real estate values, extended vacancies of properties and other environmental and economic factors.
Investments in international markets present special risks including currency fluctuation, the potential for diplomatic political instability, regulatory and liquidity risks, foreign taxation and differences in auditing and other financial standards. Risks of foreign investing are generally intensified for investments in emerging markets.
An investment in an exchange-traded fund (ETF) generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange traded) that has the same investment objectives, strategies, and policies. The price of an ETF can fluctuate up or down, and the Fund could lose money investing in an ETF if the prices of the securities owned by the ETF go down. In addition, ETFs may be subject to the following risks that do not apply to conventional funds: (i) the market price of an ETF’s shares may trade above or below their net asset value; (ii) an active trading market for an ETF’s shares may not develop or be maintained; or (iii) trading of an ETF’s shares may be halted if the listing exchange’s officials deem such action appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
The Fund may use derivative instruments. Derivatives are investments the value of which is “derived” from the value of an underlying asset (including an underlying security), reference rate or index. The value of derivatives may rise or fall more rapidly than other investments. For some derivatives, it is possible to lose more than the amount invested in the derivative. Derivatives may be used to create synthetic exposure to an underlying asset or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” the overall risk of its portfolio, it is possible that the hedge may not succeed. This may happen for various reasons, including
unexpected changes in the value of the rest of the Fund’s portfolio. Over the counter derivatives are also subject to counterparty risk, which is the risk that the other party to the contract will not fulfill its contractual obligation to complete the transaction with the Fund.
The Fund may engage in short selling activities, which are significantly different from the investment activities commonly associated with conservative stock funds. Positions in shorted securities are speculative and more risky than “long” positions (purchases) because the cost of the replacement security is unknown.
The views expressed in this article are those of the participants as of a specific date, and are not intended as a forecast or as investment recommendations. Information provided with respect to the Fund’s Portfolio Holdings, Sector Weightings, Number of Holdings, Performance and Expense Ratios are as of the dates described in the article and are subject to change at any time.
You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund’s prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund’s prospectus by calling 1-877-747-4268. Past performance is no guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Distributed by Unified Financial Securities, Inc., 2960 North Meridian Street, Suite 300, Indianapolis, IN 46208. (Member FINRA)
