THINGS YOU NEED TO KNOW ABOUT INVESTING
RETURNS Mutual funds are like many other investments without a guaranteed return: there is always the possibility that the value of your mutual fund will depreciate.
RETURNS Unlike fixed-income products, such as bonds and Treasury bills, mutual funds experience price fluctuations along with the stocks that make up the fund.
RETURNS When deciding on a particular fund to buy, you need to research the risks involved – just because a professional manager is looking after the fund, doesn’t guarantee good performance.
RETURNS
That’s largely dependent on the skill of the Fund Manager in picking winning investments.
ADVERTISING
The first thing you need to be aware of is to ignore the pretty brochures and attractive advertising.
ADVERTISING Some funds may be incorrectly labeled and can therefore manipulate prospective investors by using names that “sound nice.
ADVERTISING Instead of labeling itself a small cap, a fund may be sold as a “growth fund”. Or, the “Zimbabwe High-Tech Fund” could be sold with the title “International HighTech Fund”.
DIVERSIFICATION
Diversification is touted as one of the advantages of mutual funds but many fund investors tend to over-diversify.
DIVERSIFICATION Warren Buffett’s belief is over-diversification can hamper returns as much as a lack of diversification. That’s why he doesn’t invest in mutual funds.
DIVERSIFICATION
It’s also why he prefers to make significant investments in just a handful of companies.
DIVERSIFICATION
The reverse is also true if investors acquire many funds that are highly related and, obviously, don’t get the risk reducing benefits of diversification. If a fund invests only in a particular industry or region it is still relatively risky.
FEES Mutual funds provide investors with professional management, but by allowing you to take a hands-off approach to investing comes at a cost. You pay operating fees charged as an annual percentage – usually ranging from 1-3%.
FEES You’ll also pay fees for purchasing or selling the funds. These are fees you have to pay regardless of the performance of the fund. This means that even if your fund doesn’t make any money, you’ll still have to pay the fees.
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