Your Questions About Investing In Mutual Funds

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Joseph asks…

Can you make money investing in mutual funds?

I have money in a 529 plan and an IRA. I understand those and their tax implications. I don’t understand how you make money from investing in mutual funds just normally and the tax implications. If a mutual fund sells something… then you have to pay taxes on it? I am not quite sure how that process works. I know Vanguard has funds, but I’m not sure how investing in them without the tax benefits from the IRA and such can help me. Thank you.

financi4 answers:

I don’t think those three people understood your question…or else I didn’t. What you want to know is : can investing in mutual funds still be profitable if it’s not tax deferred, right?
Certainly it can… You DO have to give the government a cut, but you can still come out wayyyy ahead.
The Mutual Fund is your investment…whatever trades they make , gains, losses, etc, mean nothing during the year…at the end of the year , your money, your ” portion” of the fund has made some money…and THAT is what you pay taxes on… The fund sends you a 1099 form , it shows the amounts of capital gains and dividends that you have earned…there are simple lines for those entries on your tax form… Enter them, do the math … And you ‘re ahead a certain amount.
Most of the taxes paid in cap gains and divs are at a lower rate than your normal earned income…( at least right now they are…may change with a full- blown Dem government…still…no problem…the funds can make you money..( you just have to give some of it to politicians to spend on what THEY think is important)
… But no matter what they take..you have still added money to YOUR own account…and the mere fact that you have, increases the amount you will add in the next year…if your fund earns the same percentages…( Surely, you’ve seen that result in your retirement accounts)

Thomas asks…

New to investing – Why are stock mutual funds doing so poorly?

Almost every mutual fund with major blue chip stocks has taken a hit. Some of them are actively managed. If this is the case, then why don’t these managers “time the market” and get totally out – For example – a fund invested in all Blue Chip stocks…..if they are all losing about 30% this year, then why are the fund managers holding any of it? They say market timing should be reserved for experts – so why don’t they back completely out in a down period like this?

financi4 answers:

Successful market timing on a regular basis is impossible. Whenver a stock is sold at the top, it is pure luck. Now would be a good time to be buying in small increments, in my opinion. It is crazy to sell a stock when it is way down unless you need the $ immediately.

Steven asks…

What are two advantages to investing in mutual funds?

What are two advantages to investing in mutual funds?

financi4 answers:

1. You get to blame somebody else if you loose money. 2. Diversification at a small cost.

Robert asks…

Is now a good time to start investing in mutual funds?

I just opened a Roth IRA with Fidelity, and i’m interested in investing my money in other ways (like maybe mutual funds?). I’m in my early 30s, and i’m really interested in making my money work for me. Since it seems that we’re headed for recession (no matter was bush says…), is now a good or bad time to invest? or should i consider investing in other types of ways? thanks so much for your time!

financi4 answers:

ROTH IRAs are an excellent choice! During down times like these it is a good bet to be in bonds and cash while equities are down. You’re young, haha I am telling you that and I am 21. That fact that we are young means we can be a bit more aggressive – it is all about diversification – go to a wealth manager and they will put you in a total return based account where they split it up 60/40 or 70/30 with the larger amount being equities which are somewhat recession proof and 30 in income driven low risk bond models. ETFs can be good because they play on themes as well – good rule of thumb is to go with staple items during a recession.

Charles asks…

I want to start trading stocks and investing in mutual funds?

I am trying to start investing in the stock market and investing in mutual funds but where and how do I buy them?

financi4 answers:

Hi Justin…if you do not know where to get them and how to buy them you have not done enough homework to be ready to invest. You need to read some basic books on investing and then get hooked up with a brokerage. The market is not for beginners to do it alone. Ask you friends or business associates what brokerage they use and then INTERVIEW the broker. She/he has to understand completely what your goals are, both long term and short term. GOOD LUCK

William asks…

Do you know anybody who had suffered loss by investing in mutual funds?

I am curious to know what are the possibilities due to which one may suffer loss by investing in mutual funds. I understand some risk is involved as usual but by knowing some specific examples of incurring loss, I will understand the issue better. So please share any incidemt you know and also indicate how the peroson might have avoided the mistake she/he made. Thanks in advance.

financi4 answers:

Mutual funds are a lazy way of investing and you pay a fee to have people manage those funds for you (MER)-management expense ratio.

Before diving in, a bank or investment firm should go through a series of questions with you that will help determine what your risk tolerance is. Based on those stats, they will be able to show you specific funds that are in your risk category, and that is essentially the best risk management with mutual funds, knowing what your willing to risk for the reward.

More specific to your question, if you were in a mutual fund that was solely invested in a sector such as commodities (metals, oil, etc) you would probably see spikes up and spikes down, as eg. Oil and gold prices tend to do.

If you were in a balanced fund that was weighted to have say such a percent in equity, and the other percent in bonds, well that would be a much safer way because usually when one goes up the other is down, and vice versa, many banks will call something like this a balance growth mutual fund. You won’t get rich, but with compound interest and possibly many years ahead of you, the trends show that it will go up and down, but usually you gain some in the end.

David asks…

Mutual funds investing help?

I am new to mutual funds and i have a little knowledge on it.So can anyone tell me what are the uses and disadvantages in investing in mutual funds and how to invest in mutual funds.Can we get a monthly income by investing in mutual funds??

financi4 answers:

QUITE THE CONTRARY, investing in mutual funds is an extremely WISE choice for most people.
It allows you to have a wide exposure to the market, choosing funds in a specific region or industry, or be involved with the entire stock market if you like. Funds could have dozens to thousands of companies in them. Or if you like look into ETF’s.

Mutual funds also have extremely low expense costs. Just find a good place that doesn’t rip you off (e.g. The big banks you probably go to). Try Vanguard, T. Rowe Price, Fidelity, and Schwab. Avoid the big banks like the plague. Don’t let them rip you off with loads (sales charges) and fees. Check how much the company charges you as an expense ratio. A good one might charge you 0.2-0.8 %. If they charge more than 1% than go somewhere else. And if they charge any kind of 12b-1 fee, hold on to your wallet and RUN.

If you want to supplement your monthly income, there are bond funds as well. They are relatively conservative to fairly aggressive. If you want to look at some, see
https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc
and play with it, showing funds with more or less risk.

If you are thinking of retirement, consider a Roth IRA. Your money grows tax free, and when you retire you can withdraw it tax free as well. There are specific funds for those as well, such as Targeted date funds that automatically change over time to switch to bonds as you get older and lock in your gains.

Do some reading online such as
http://www.vanguard.com/us/insights
and books like Mutual Funds for Dummies for a good intro.

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