Author: Warren Wong

While we all wish we could be Warren Buffet, the truth is that most investors are best served just parking their money in a mutual fund or ETF. What is the difference between these two types of investment options and which one is for you?

Both mutual funds and ETFs allow the investor to achieve diversification. Each invests in a basket of stocks, so the investor generally does not have to worry that one individual stock will radically alter his or her returns. Both also give the investor the choice of investing in a certain sector, if he thinks a sector will perform well. For example, there are mutual funds and ETFs that focus just on technology, and there are also broader mutual funds and ETFs that focus on the market as a whole (if you want maximum diversification).

The key difference between mutual funds and ETFs are that mutual funds are actively managed, whereas ETFs are passively managed. What does this mean? Basically, mutual funds have a manager that chooses which individual stocks to buy and sell. He will actively choose generally 50-300 stocks in which to invest. In contrast, an ETF will just invest in the stocks that correspond to an index.

For example, the ETF Diamonds (DIA) seeks to track the Dow Jones index. The ETF's performance will almost exactly mirror how well the Dow Jones index does. So if the Dow Jones goes up 9% in a year, DIA will go up about 9% as well. In contrast, a blue chip mutual fund will also invest in blue chip stocks, like the ones that make up the Dow Jones index, though it may choose to invest in only some of the stocks in the Dow Jones as well as other blue chip stocks that are not in the Dow Jones. Thus, while the Dow Jones may go up 9% in a year, a blue chip mutual fund could have a vastly different return. It might lose 2% or it might gain 15%; it just depends on the luck and the skill of the mutual fund manager.

As you can see, the key difference is how they are managed. But which one is better? Well, it depends. Since there are more decisions and more effort involved in a mutual fund, these charge higher fees than ETFs. These fees may be worth it though if the mutual fund can outperform its index peers. If the mutual fund has returns similar to an index or worse, than the ETF will be better.

Investing in ETFs are a little easier than a mutual fund. As you can see, with an ETF, you are at least guaranteed to meet the index. With a mutual fund, you could do better or you could do much worse. One tip, more than any other, is to make sure you do not pay too high of expense fees with a mutual fund. If your mutual fund is ripping you off, you certainly will underperform the market!

Article Tags: Stocks, Stock Market, Mutual Fund, Stock Investing, Etf

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Source: http://financialwww.com/

Because of the high risks associated with investing in the stock market, many investors are looking for a way of investing their money in a lower risk form although one that still rewards you with pretty good returns over time.

Quite simply, a mutual fund is a way of sharing the risk of your investment with a group of other people. Your resources are pooled together, and put into the hands of a fund manager who will invest on your behalf to get the best returns for you.

There are many different flavours of mutual funds to choose from, with different risks attached to them, and you can choose the best one for your aims. Some invest in higher risk stocks with the aim of making quick returns, while others will stick to more stable industries, where the gains are made steadily over a longer period of time.

Many funds will invest in non-market schemes too, including property. There are options to choose ethical investment, and investment in environmentally sound companies, so whatever your personal taste, you are sure to be able to find a fund to suit you and your needs.

Instead of investing directly in the stocks, you buy into the fund, and become a shareholder in it. The fund manager then controls how the investment is spread across the markets that

When compared to direct investment in stocks and shares, investment in a mutual fund is a cost effective and simple option. Rather than having to pay close attention to the day to day price of a particular stock, and change your strategy constantly to get the most out of your stake, the fund manager will spread the value of the fund over a larger area of the markets, and make decisions on your behalf.

This diversification across a spectrum of investments will allow him to substantially lower the risk, and thanks to the expertise of your fund manager, you can still do very well in both the long and short term

In summary, investing in a mutual fund is a way of sharing the risks associated with investment in the markets. It offers a method of hands off diversification that is managed by an expert, who controls where the money goes. The portfolio of the fund will be monitored and controlled by someone who know the market, and is keen to make a good return on your part. It offers a way of increasing the rewards that you might expect from many investment schemes, whilst also reducing the risk of direct investment in volatile shares.

Source: http://financialwww.com/

A mutual fund is also known as an open-end fund and is an investment company that spreads its money across a diversified portfolio of securities- including stocks, bonds or money market instruments.

Shareholders who invest in a fund each own a representative portion of those investments, less any expenses charged by the fund.

Advantages of Investing in Mutual Funds

1. Professional Management
2. Liquidity
3. Explicit investment goals
4. Simple reinvestment programs
5. Investment diversification.

Disadvantages of Investing in Mutual Funds

1. Mutual funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.

2. Many funds charge hefty fees, leading to lower overall returns.

3. Overtime, statistics reveal that most actively managed funds tend to under perform their benchmark averages.

Mutual fund investors make money either by receiving dividends and interest from their investment, or by the rise n value of the securities. Dividends interest and profits from the sale of any securities (capital gains) are passed on to the shareholders in the form of distributions. And shareholders generally are allowed to sell (redeem) their shares at any time for the closing market price of the fund on that day.

Reasons to Invest in Mutual Funds:

There are various reasons for the investors to choose mutual funds over other investments such as bonds and stocks.
Diversity can both increase and decrease your potential returns and decrease your overall risk. Mutual funds allow an investor to spread out his or her money across a few as a handful to as many as several thousand companies at one time.

Funds can be beneficial for small investors who would be forced to pay enormous transaction fees if they bought the securities individually and for people who don't have time to research their own investments or who don't trust their own investment expertise.
Mutual funds are not necessarily low cost investments. Many of them charge one time "load fees" to new purchasers.

Types of Mutual Funds:

1. Closed End Mutual Funds:
These funds issue a fixed number of shares to the investing public and usually trade on the major exchanges just like corporate stocks.

2. Open End Mutual Funds:
These funds stand ready to issue and redeem shares on a continuous basis. Shareholders buy the shares at the net asset value and can redeem them at the current market price.

3. Load Funds:
Load funds refer to sales charge paid by an investor who purchases shares in a mutual fund. When sales charge is imposed at the time of purchase, it is known as a front-end load. Back end loads represent charges that are assessed when the investor sells the fund.

4. No Load Funds:
A No Load Fund is sold without a sales charge.

Source: http://financialwww.com/

An offshore fund is a collective investment fund domiciled in an Offshore Financial Center. These funds have been in existence since the 1960's, and so named because they were established originally in the island tax havens of the Caribbean and the English Channel. The term 'Offshore' has since come to mean any jurisdiction, wherever geographically located, which is advantageously different from one's own domestic financial environment.

Advantages

The advantages take a number of forms: a tax free, or 'tax-lite' regime, which reduces the costs on the fund making increased performance achievable, and a less restrictive regulatory environment. Assets can be held in confidence, and the timing of tax payments, and mitigation of the rate at which they are levied can be managed by investing offshore.

Offshore funds offer eligible investors significant tax benefits compared to many high tax jurisdictions such as the United States and the European Union. However, where funds are repatriated to high tax jurisdictions, they are usually taxed at normal rates as foreign arising income.

Many of these tax-haven locations are considered investor friendly and are internationally regarded as financially secure.

1. Confidentiality While conceding the need for greater degrees of co-operation with onshore authorities, the offshore centers' tradition of protecting investors' privacy still persists. If they are implementing measures necessary to maintain a reputation for profit, on money laundering for example, and if they are co-operative when there is evidence of criminal activity, they will nevertheless actively resist any attempts at 'fishing expeditions on the part of onshore tax authorities.

2. Returns and Volatility In addition to operating in a benign tax environment, offshore funds have the opportunity to further increase their returns through exposure to a wider range of asset classes. It is an accepted principle that diversity can better balance an investor's portfolio and reduces its volatility. By spreading investment around different financial centers, not only are diversity increased, but exposure to different market conditions and investment styles are brought into the mix as well.

Although most offshore jurisdictions permit funds to obtain licenses to operate as public funds, the onerous regulatory requirements associated with such licenses usually means that only a small minority of offshore funds is available for subscription by the general public. These funds are subject to formal constitutions, and operated and monitored in compliance with the rules of the local regulatory regime.

While shares in many offshore funds are available by direct application to the managers, the decision to invest in them is likely to be made within the context of broader financial planning. This, plus the desirability of expert guidance, makes an approach through an appropriate financial advisor highly to be recommended.

Source: http://financialwww.com/

Investment fund is the investment of money for profit. An investment fund is a financial investment vehicle, which is aimed at private investors - little or large-or institutional investors-insurance companies, banks - and offers the following five key advantages over direct investment in shares, bonds and property:

1. Risk is spread and hence reduced.
2. Funds allow you to tap into professional, expert and full time investment management expertise.
3. Funds are cost effective.
4. Funds offer access to markets that may otherwise be closed or too technical for retail/individual investors.
5. Funds benefit from institutional safety, which means they are heavily regulated and supervised.

The benefits of investment funds, where individuals from all walks of life pool their savings together, can be summed up as offering everybody - from professional or institutional investors to people with limited time, or limited investment skills or modest means - access to investment returns otherwise only available to more sophisticated investors, who are able to buy their own professional portfolio management advice.

Investment funds generally entail less risk than direct holdings of securities, and offer economies of scale. It is a firm that invests the pooled funds of retail investors for a fee.
Information on the product you, as an investor, are contemplating buying is crucial.
Usually, all vital information must be included in an investment fund's prospectus. However, prospectuses have become increasingly complex and difficult to understand, thus discouraging investors from reading them.

Investment funds are suitable for anyone who:
1. Is planning to invest in the capital markets but does not want the risks or costs associated with direct investment in equities or bonds.
2. Already has enough money to cover their everyday spending needs and has some spare cash.
3. Can accept possible temporary falls in the value of their investment.

Investment funds should be considered as a long-term savings product. Investments should be held for at least three to five years, preferably longer. In fact, the longer the time scale, the greater the potential to make money grow.

Investment funds can be classified according to their investment objectives.

1. Money Market Funds
Money market funds invest a sizeable portion of the fund's portfolio in short-term bonds and/or money market instruments (such as certificates of deposit, commercial paper, treasury bills,).

2. Bond Funds
Bond funds invest in fixed interest rate securities as a sizeable portion of the fund's portfolio. These funds generally have a global average maturity of more than one year and its investments can consist of different instruments with very different quality ratings.

3. Equity Funds
Equity funds invest in the stock market at a significant portion of the fund's portfolio. These funds are frequently also called stock funds.

4. Balanced Funds
Balanced funds spread their portfolio over the three main classes described above.

Source: http://financialwww.com/

When planning for retirement, one option for some people is the SEP IRA. The SEP IRA stands for simplified Employee Pension Individual Retirement Account. This is a special type a retirement plan designed for small business and the self-employed. It was designed by the government to be a simple and easy retirement plan to set up and administer. Is not merely as complicated and has far fewer rules that retirement plans like the Keogh plan or a 401(k) plan. For a small business, and players can't match the contributions other employees funds by as much as 25%. Self-employed people haven't even greater advantage. They can't contribute a much greater amount. It is based on the net profit of the business.

Simpler Rules For The Sep IRA

Since the rules governing the SEP IRA are much less stringent, small-business owners can establish simpler requirements that standard IRS regulations is needed. The eligibility requirements established by the Internal Revenue Service for an employee to contribute to an IRA must be at least 21 years of age, worked for the employer for a least three of the past five years, and have earned a minimum of $450 in wages. The rules for withdrawals are quite simple as well. An employee, once he or she reaches age 70 1/2 should begin to withdraw from other IRA account.

Flexibility For Employer Contributions

Unlike other IRA accounts, there are no set contribution obligations. What this means is that an employer can change the amount and frequency of contributions to the plan based on the businesses profitability for each year. This makes the SEP IRA a better choice for the small-business. During startup years, profits may below, the employer can set up a SEP IRA plan with a smaller employer match. As the business and profits growth, take it increase their contributions. Is the business hits hard times, they can't reduce the amount of contributions for a year or two until the outlook gets better.

Enrolling In A Sep IRA

Unlike other IRA's, the enrollment forms for a simple IRA are fairly easy to fill out. It is a simple two-page form. All the employee must do is to fill out an investment application provided by the Company that will hold the investment funds. The SEP IRA does not require any reporting to the IRS on annual returns. This makes it easy for a small business to administer the SEP IRA. With only a two-page form to fill out, employees are more apt to enroll it a SEP IRA.

Choices In Investments

Most employers choose a large mutual fund company to fund their employees SEP IRA's. This gives the employee many choices in how to invest their money. This makes it easy for the employee. They can choose to divide their contributions among several different mutual funds. For example they may contribute part of their earnings to a relatively safe bond fund, while at the same time, contributing part of their earnings to a riskier small-cap stock fund. These choices are left up to teach individual employee. The employer does not have to worry about which fund to select for their employees.

A SEP IRA is a simple way and cost-effective way to set up a retirement account. Is ideally suited for small business due to its low administration costs and its low amount of maintenance. It has simple forms and simple reporting. If your employer does not yet offer a retirement plan, you may want to suggest that they consider a SEP IRA.

Source: http://financialwww.com/

Once only available to those who could afford to fund it, can appoint an expensive trustee, the ability to run a trust fund and the tax advantages that it brings are available to all. Known as living trusts, they present an opportunity for all to manage their estate while they are still alive and provide for their loved ones after they have passed on.

By preparing a living trust, the party or parties involved are able to avoid their estates being put through a probate process after their passing. This is a costly and time consuming process, where only the legal system gains and the parties' heirs are denied access to the funds or assets that are legally theirs.

A living trust, virtually supersedes leaving what was once a "last will and testament", where the parties know that almost as soon as they pass on, their beneficiaries will be able to enjoy the fruits of "trustor's" life's labors which will be left to them in their estate. A trustee appointed by the party or parties who will be drawing up the living trust will handle all the arrangements necessary.

Nowadays anyone whose estate value of $100,000 or more can enjoy the benefits and knowledge that after their passing, the distribution of their estate will be handled both quickly and efficiently. Formerly the estate would be subject to probate laws, set in the state where they lived. Handling the disbursement of the estate after death could cost between 2%-4% of the estate value just in court and legal fees.

By preparing a living trust the party or parties can avoid a large portion of these fees, the time it takes to settle the probate, and a percentage of the estate taxes.

Living trusts can be funded by anything that the "trustor" decides. It can be money, stocks and bonds, property, life insurance policies and any item of personal property, valuable or not. The trustor has to clearly state who gets what once they pass on. When the trustor does pass on, then the appointed trustee oversees the distribution according to the "trustor's" exact wishes.

In the event that the "trustor" becomes infirm or incapacitated, unless they have left specific instructions to the contrary, the trustee will accept responsibility for the management of the estate. Beneficiaries will be unable to make changes to the way the estate is to be distributed after the "trustor's" passing, and new beneficiaries can be added.

By setting up a trust fund well in advance, the trustor can relax in the knowledge that their estate is in the capable and objective hands of a trustee, who will act in their best interest and in the interest of their loved, either if they become physically or mentally incapable of taking care of their affairs. When they pass on, the know that by creating a living trust they will have enabled their estate to be dissolved efficiently and rapidly, avoiding unnecessary distress to their loved ones.