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Monday, March 19, 2012
Mutual Funds: What and Why?...by Austin the Realtor
Hello All,
Now, on to some investing information that can be helpful. I’m sure many, if not all, of you heard of the stock market - buy low and sell high, IPO, Dow Jones, Nasdaq and many other investing related terms. There are even movies that touch on this fast paced world; “Wall Street 1 and 2”, “Trading Places” and “Boiler Room.” But how can all this information help you? You probably already invest but may not know what you invest IN.
Today we are talking Mutual Funds. The 2 most popular vehicles in which mutual funds are utilized are your retirement through your job (401k or 403b) and 529 Plans for college savings.
Definition of Mutual Fund:
- An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Read more: http://www.investopedia.com/terms/m/mutualfund.asp#ixzz1lEYbdak9
This means you have the opportunity to invest in many big name companies with as little as $25 a month. You choose a mutual fund based on its objective: Capital Appreciation (hope the value goes up at the risk of it going down), Preservation of Capital (hope the value goes up but without risking too much of what I put in), or Income Based (pay dividends without my investment moving much).
Your decision would be based on your goal and “suitability.” This means if you are 65 and retired, you wouldn’t invest in a mutual fund where you risk your investment. You may be more looking at Income Based to save your money and receive dividends.
For the most part, mutual funds are long term investments - usually for 5-10 years out or more such as college (529 plans) or retirement. The good thing is that it is managed by a professional portfolio manager so you don’t have to sit in front of your TV watching the Dow deciding when to buy and sell. That’s his job.
Last Note:
401k or 403b – if your job offers it, participate. Some jobs match your contribution. These are pre-tax funds so you lower your taxable income. The intent is that when you retire, you are in a lower tax bracket so you will be taxed less when you withdraw - plus it’s invested over time.
529 Plans – start now for your children. Depending on the state, the earnings are tax free. Plus, it’s transferable to other children. Lastly, you can use it for yourself for higher education expenses. Google: 529 Plan and your state for more info.
-Austin
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21 comments:
First bitches!!
I did it!
I didn't even try because I thought Anna would beat me, but damn, she's late!
This was good information - but I have a question. What happens if you invest in the 529 Plan and your kid doesn't go to college, you yourself don't use it and you don't have a kid to transfer it to? Can you put it into something else?
Sorry but sometimes I am required to actually work.. LOL
And actually just for today you should have used his 9-5 title. AVP of Mutual Funds Trading...
#justsayin
Hi everyone! That's a great question Stef...I have a question to piggy back off of that one Austin. What do you know about these state 529 Savings Plan where you can lock down today's tuition rate for your child in the future. Also some are FDIC insured but I don't think some are for the state wide plans. I'm looking at various options. But if I can lock down today's tuition for my son when he's 18 that's great but I want to make sure it's insured.
There is also a tax vehicle in New York where you can set aside education funds for children and you can withdraw at ANY time not just college. Ugh - I cannot remember the name of it but if you are considering private school this is another way to save, not be taxed and not suffer any penalties for early withdrawal.
Hey Steph, since these 529 plans are investment vehicles that are offering you a benefit for higher education purposes, there is a penalty if it is not used for that purpose which is normally 10%. The transferrable feature helps by giving you options by moving it around but if it is not used and it is redeemed, the penalty would apply.
Thanks Aisha......You may be referring to the Coverdell Education Savings Accounts. These are good options also.
Hi Serena, I will have to research the "locking down tuition cost until 18 years of age". Not familiar with this part of the 529 plans but it is great since tuition costs are constantly rising.
Yeah I don't think every state is up on it yet. Maryland and Virginia have started which is fantastic but I need to make sure my investment is secure. I wonder if schools (like Syracuse) that are hella expensive now might start their own plans...hmmm...
@Serena - that would be great. That is a huge incentive to move on these plans. I'm curious how the process works since the child would have to be accepted first or even wants to study at that institution.
My personal opinion, 401k/403b plans are only worth it if your company matches a percentage of your contribution. Otherwise, there are better ways for you to make your money work for you. Although, if you don't want to think about investing AT ALL ... it's much better than a savings account.
Powerz that is a good question...I'm going to do more research about the state plans. I think the investing can be used for any state school, but as you said what if the child doesn't want to go to that school/s or wants to go out of state.
Something that makes you go hmmmm.
Are there free classes for learning to invest?
@V - I agree with the matching comment. That is free money.
Its also good for those that don't make a concious effort in investing with tax benefits.
@V - what are better ways other than a 401k? I participate, but I can't afford to contribute the maximum. My company does match a percentage, but I'm thinking of changing jobs, so what if my new company doesn't match - what are some better ways to invest other than a 401k?
This is good information. I have to look into the options for my kids' future.
@Courtney - Your local bank may hold seminars for the novice investor. There are many easy to read articles also that touch on all facets of ivesting. MSN Money is a good site.
@Stef (If V doesn't mind I add my two cents) - a 401k is just the investment vehicle for retirement purposes, not the actual investment. IRAs are comparable vehicles which can be opened at and Mutual Fund Company, the same companies that your company uses in your 401k. The plus side is that you are not limited to the funds your company invests in.
@Powerz not at all, by all means.
@Stef there are so many factors like your individual short term investment and/or retirement goals, how much you can consistently put toward it, even the type of career you have, etc.
If you do decide to change jobs and they don't match funds, I'll be glad to give you my 2 cents ... just get at me thru Brooke. Good luck.
Thanks!
Brooke, can we have multiple contributors for Money Mondays? or maybe Austin does Monday and V does Friday? I need all the help I can get! LOL!
I always admire people who are financially savvy. Austin and V - how did you learn? Were you business majors, or just took an interest? V - what do you do?
@Stef,
I love guest bloggers, especially those who are educating us. I'll take information wherever I can get it, but I don't want to speak for V, he may not have time because he's too busy making money! LOL! I'll leave that answer up to him :-)
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