Mutual Fund Investing
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Open-ended mutual fund investing allows more individuals to profit through collectively combining assets. A mutual fund is an investment company whose shareholders pool cash to make substantial investments in stocks, bonds, securities, and other short-term instruments that earn a relatively high yield. Members employ a Biblical principle that a group of individuals have a better chance at investing and making a profit, rather than a single depositor. "Two are better than one; because they have a good reward for their labor" (Ecclesiastes 4:9). Pooling resources enables shareholders to make more diverse and larger investments, especially in global markets. In this respect, mutual fund investing works similar to an old-fashioned savings club where members regularly deposit small amounts of money over a period of one or two years, at the end of which a lump sum is distributed amongst club members or re-invested for greater collective returns. That's rather simplistic, but the principle is still the same; and in both cases, each investor is entitled to returns which reflect a proportionate share of the pot.
Unlike social savings clubs, mutual fund investing involves compliance with several federal mandates. Legitimate investment companies must be registered with the Securities and Exchange Commission (SEC) and must issue an annual prospectus to shareholders with detailed information on how much money is in the account and where monies are invested. Shareholders have a right to know whether monies are invested in securities held by corporations which promote or adhere to the mission or overall goal of the company. There is usually a purpose for forming investment companies; not only to earn profits for shareholders, but also to affect societal change or support worthy causes. Investing in stocks, bonds and securities which further a philanthropic or socially-responsible cause provide shareholders with an incentive to continue investing, rather than just earn high yields. Federal mandates exempt investment companies from paying taxes on fund monies, as long as 90% of income earnings are disbursed to shareholders.
In the 30s, the federal government passed legislation regulating mutual fund investing companies as a result of the stock market crash of 1929. Four years after what is known as "Black Tuesday," the U. S. Congress not only passed the Securities and Exchange Acts of 1933 and 1934 to require investment companies to register with the SEC, but also mandated that each company be directed by a professional fund manager. The motivating factor was accountability to shareholders to avoid the same scenario which helped contribute to the demise of the nation's financial structure in '29: too many unwise investments made by individuals and corporations without regard to wise and prudent oversight or safeguards, such as insurance on deposits. Wealthy shareholders who had invested heavily in the stock market lost entire fortunes overnight. Some who were unable to cope with falling from lofty perches as corporate moguls to poverty-stricken paupers committed suicide. However, the Bible admonishes against setting our hearts on uncertain riches. "Lay not up for yourselves treasures upon the earth, where moth and rust doth corrupt, and where thieves break through and steal. But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also" (Matthew 6:19-21).
Since the late 70s, mutual fund investing has become more than just a past time for the wealthy, but a method of accumulating retirement income for the average working class. In 1975, the Internal Revenue Service gave the green light for average taxpayers to open tax-deferred savings plans, such as Individual Retirement Accounts (IRAs). That single move started a whole trend toward mutual fund investing in the workplace, as employees began making regular contributions to employer-provided plans. Some deposits were matched by corporations and invested in the stock market for higher yields. Today, even defined contribution retirement plans must be handled by a professional manager who is responsible for overseeing deposits and ensuring that employee accounts are properly credited, especially important when workers choose to retire or leave the company. Employees who leave for other employment may elect to rollover monies deposited into IRAs and other employer-provided plans into their new company's plan.
In order to capitalize on employee contributions or shareholder investments, mutual fund investing company managers act as brokers on behalf of investors. Selecting the right stock, securities, or short- or long-term bonds to purchase or sell requires a superior knowledge of domestic and foreign markets; a keen adeptness for analyzing and projecting market trends, and an application of sound accounting practices and principles. After all, the individual selected to manage a company's assets is responsible for hard earned cash which sometimes equals an individual's life savings and future hopes. Mismanaging shareholder and employee monies is not an option, nor is negligence or failure to carefully scrutinize assets and expenditures to ensure that monies are in place when contributions must be accounted for or disbursed.
In a highly volatile market, when stock market prices fluctuate drastically from one day to the next, mutual fund investing can become a precarious undertaking. Investors can lose big if corporations fail due to economic woes which adversely affect bottom line profits. As stock markets erratically rise and fall, even short-term investments, which are usually presumed to be safe instruments that can quickly convert into cash, can be lost overnight, as consumers and lending institutions tighten the purse strings and freeze the flow of cash. In uncertain economic times, managers may tend to be conservative when choosing investing options. Long-term U.S. securities, Treasury bills, and sector funds, such as those connected with emerging green technologies, may be the safest risk for investors who are leery of a rapidly changing stock market. But no matter how uncertain the economy, investing in a mutual fund may still be an employee's best option for future financial security.
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