Mutual Fund Investing
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.
Mutual Fund CompaniesMany people find mutual fund companies to be quite a mystery. And those who are trying to invest and save for retirement can be easily confused by the jargon and intricacies. Those without a keen sense of business acumen often puzzle over what these companies really are, and whether they are a good investment. This confusion and stress can also translate into a lack of trust and result in the decision to forgo this particular avenue of investing. But it does not take a business major to understand the simple concepts behind mutual fund companies.
Mutual funds, also known as open-end funds, were conceptualized before the crash of the stock markets and the Great Depression. But, understandably, given the completely unstable nature of the economy during the late 1920's and 1930's, investors were not so eager to place their faith in companies to help invest money. However, with time, Americans overcame the intense distrust. This was, of course, helped along by the reenergizing of a flagging economic structure. And today, the amount of money invested in mutual funds companies total in the trillions.
How do mutual fund companies work? Simply stated, they gather investors, who pool together money, and after this is collected, a portfolio is begun. This portfolio contains a collection of stocks, bonds, and other avenues of investments. Professionals pour over market trends and business reviews in order to make informed decisions on where the money should be allocated. Depending on the fluctuations in the market, and the various purchases on the part of the professionals, shareholders in the corporation either make or lose money. These earning, or loses, are distributed evenly amongst investors, who always have the option to purchase more shares or sell the ones they currently own.
While no one can say with complete surety, mutual funds can be a good decision, if chosen wisely. On the plus side, the individual investor does not have to worry about what stocks to buy and what purchases to sell. The team of professionals with one of the mutual funds companies will make those decisions on a person's behalf. While the loss of control may be a bit frightening, it is best to remember that these people have training and experience that the average investor would not. People who buy into open-end funds also do not have to spend the often exhaustive hours compiling information on the stock market and trends. This is done for them.
Unlike other avenues of investing, mutual fund companies offer the added allure of ease and convenience. There is no exorbitant set amount to begin, although there can be a minimum purchase required. A person simply purchases shares from the company. With this comes the added benefit of fluidity, meaning that a person can call and add or sell shares at whim. A person can also sell-out of the corporation without much fanfare. Generally, all that is required to do this is a phone call. Investors can also choose to call the company in the event of any question they may have; most will have representatives available to handle customer service issues and queries.
Most who choose to place faith in one of the many mutual fund companies enjoy the relative stability that choice brings. When going with a larger company, a person is essentially dividing his losses. If the markets take a tumble, any dips in the value of the corporation's assets are then equally distributed through the shareholders. In a larger base of consumers, the hit is not felt so keenly. This venture also has the benefit of being diversified. Businesses, at least reputable ones, that deal in this market are wise enough to spread money out over a variety of different purchases and investments. This means that if one sector of the market does poorly, it does not necessarily mean that the rest of the portfolio will follow suit.
For some, however, the drawbacks to mutual fund companies far outweigh the negative. As with most stocks, these investments are not insured by any government or financial entity. If the markets perform poorly, and customers lose money, there is no recourse to recoup losses. So before purchasing into one of these corporations, it is important to ask oneself if the potential to lose everything is worth the possible pay off. And for those looking for a stable, reliable, and predictable return on their investments, mutual fund companies sometimes fall short of the desired mark. Just like any other stock-dependent investment, the markets are sometimes fickle, and it is impossible to predict, for one day to the next, whether the price will increase exponentially or fall dramatically.
When deciding on mutual fund companies, it is important to be thoughtful and cautious. "For which of you, intending to build a tower, does not sit down first and count the cost, whether he may have enough to finish it; lest perhaps, after he has laid the foundation and is not able to finish, all those seeing begin to mock him, saying, This man began to build and was not able to finish" (Luke 14:28-30). A person will not do well to rush head long into any decisions without first being well acquainted with facts and statistics. Some seek the advice of a financial counselor, a wise decision, and others research the history of whatever corporation they are planning to join with. As long as one does his homework beforehand, and has realistic expectations for the earning potential, choosing this path of investing can be a profitable and rewarding venture