The Mystique of Mutual Funds – Part II

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What are the fees I need to pay in a mutual fund?
Front-End Load – Fees charged upfront when you invest.Anywhere from 0% to 7% max.
Back-End Load – Fees charged when you exit a fund. Also called as deferred sales charge.

Are there funds where there is no loads?.
Of course. No-Load funds do exist. These funds do not charge any fees. Most people prefer
the no load funds from the Vanguard group.

Are there other fees I need to pay in a mutual fund?
Well there are other fees like 12b-1 fees for marketing expenses and operating expenses for the fund called the expense ratio. These fees are deducted automatically from the fund and you will not need to pay them separately.

For what stocks do I need a mutual funds?
It depends on the type of investor. For most people any type of mutual fund is a necessary. It can large-cap, small-cap or mi-cap. However if you are a professional investors, then mutual funds are the way to go for small caps. It is very difficult to research and invest on your own in small cap stocks. Fund managers have easy access to lots of information and can be the trust to monitor the investment in small stocks.

Are the mutual funds regulated?
Yes. They are heavily regulated. A mutual fund has to mail you statements and annual reports as well. Some do half-yearly reports.

What are the disadvantages of these funds?.
There are some problems with investing in MFs. The loads,expense ratio etc. can eat away a good portion of your returns over the long term like 5-10 years. Other issues are that you may get adversely affected due to other funded holders’ actions, inability to make any stock selections, inability to sell profit and losses whenever needed and unable to sell anytime when the markets are open at the current price.

Cheers!!!
-David
www.topforeignstocks.com

The Mystique of Mutual Funds

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What are mutual funds?
A mutual fund is a pool of many investors’ money. This idea started becoming popular in the 1970s and have now become the favorite tool for many investors. By pooling and investing together, you reduce the risk.

What are the type of mutual funds?
There are two types of funds. They are open-ended and closed mutual funds. In an open-ended fund, the fund will be open to new investors all the time and the fundhouse will redeem units upon request by exist unit holder. In a closed-end fund, new units are not issued. A fixed amount of units are issued when the fund is opened and then the fund is closed to new investors. However existing unit holders can trade their unit son the market with one another.

How does a mutual fund work?
A mutual with say $100M will buy 100 stocks each for $1M. So the portfolio will now contain 100 stocks. The fundhouse or the Asset Management Company which manages the fund may issue 1 Million units. Then the Net Asset Value (NAV) of this fund will be calculated by determining the market value of all the stocks in the fund and then dividing that by the number of units of 1 M. This will give the NAV price for each unit of the fund.

What are some good mutual funds in the US?
1.www.vanguard.com
2. www.americanfunds.com
3. www.wanger.com

There are many other thousands of funds to choose from.

What are some best international small cap funds?
1. Wanger International Small Cap Adv (WSCAX)

2. Columbia Acorn International Select A (LAFAX)

More on mutual funds tomorrow.

Cheers!
-David

SIP your way to success !!!

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What does the above title mean?.

First of all, when I mean SIP I refer to a concept in the field of investing called Systematic Investment Plan (SIP). In a SIP you invest a small amount each month for a particular period of time. With a SIP you develop a discipline to invest regularly. So “SIP your way to success”means your invest systematically each month to attain success.

In order to start a SIP you need to decide how much you want to invest each month and for how long. For eg. – you can start a SIP for $100 a month for a year or 5 years. You can setup auto-debit facility into your brokerage account and have the money deducted from your regular checking account each month on a particular day. By this way you will not forget to save each month and the money will be saved automatically for you. Most online brokers would allow to SIP at least $100 per month.

Where can I invest the SIP funds each month?.
There are many to invest the SIP funds. The best option is to open a mutual fund account and ask your broker to invest the SIP money into that mutual fund each month. Many brokers will do this for free. Otherwise you can even invest with the mutual fund house directly. Since $100 is a small amount it will not be possible to invest in a stock each month due to transaction costs.

What are the advantages of SIP?
1. You develop a consistent method of investing.
2. In a Mutual Fund investment, you can get more units when the markets are down.This will help you to save a particular amount quicker or your gains will increase since you will average price per unit will go down.

More on SIP strategies in future posts.

Start a SIP tomorrow and SIP your way to a prosperous future !!!

Stock Exchanges

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Some of the world’s top stock exchanges are as follows:

1. NYSE – New York Stock Exchange, New York , USA
2. NASDAQ – New York, USA
3. DAX – German Stock Exchange (Deutsche Boerse), Frankfurt, Germany
4. LSE – London Stock Exchange, London, UK
5. CAC – Paris Stock Exchange, Paris, France
6. Nikkei – The Tokyo Stock Exchange, Japan
7. Hang Seng – The Hong Kong Stock Exchange

Some of the developing market exchanges are:
1. BSE Sensex – Bombay Stock Exchange, Bombay , India
2. SSE – Shanghai Stock Exchange, Shanghai, China
3. Bovespa – Brazilian Stock Exchange, Rio, Brazil

Investing in Foreign Hi-Yield Bank Stocks

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There are many reasons why one should invest a part of their portfolio in good dividend paying foreign stocks. High dividend paying stocks can also be called as high-yield stocks. Some of the reasons are listed below. This list is nowhere near incomplete since there are probably a million other factors in support of investing in foreign bank stocks.

With the markets the way they are now some of you might wonder why in the world should I even talk about those financial stocks. The fact is that this “crisis” will also end and when it does the bank stocks will takeoff like crazy. So read on if you are an optimist..

Reasons for investing in foreign hi-yield bank stocks (ADRs):

1. Dividend Yield:
Many foreign bank stocks pay an average of 3% or more as dividends each year. Some even pay over 5%. One can find quite a number of banks that pay 5% or more dividends. This is high compared to most domestic US bank stocks. Dividends play a major in portfolio growth. For eg. – when the markets are down, dividends keep coming and if you reinvest them automatically, you get more shares. The trick here is to look for banks that have consistently paid dividends and have increased it over the years. Stocks like Bank of Novo Scotia (BNS), Barclays (BCS) Bank have increased dividends consistently.

Another fundamental reason that foreign banks pay higher dividends than US banks is that they do not try to reinvest most of their profits (net income) into the company and use it for growth.

2.Dividend Payout Ratio:
This means the percentage of profit that that banks pay out to shareholders each year. Look for stocks with payout ratio of 40% or more. The more the payout ratio is the better for shareholders since they can get the cash and reinvest it elsewhere or use it for their own personal uses. A bank that increases its payout ratio on a consistent basis is also a very good bank.

3. Pillars of the economy:
No matter which country you invest in, banks form the “pillar” of an economy. Without banks countries cannot exist. So whether a country is in recession (economy in doldrums) or a country produces only consumer goods and not any high-tech goods or a country has only natural resources, it needs banks to manage the economy and for people to invest and save their earnings. So its no brainer that one should invest in foreign ADR banks in any country that they are interestd in. For example, if you want to invest in the tiny country of Singapore, start with the United Overseas Bank. This trades on the OTC exchange with the symbol: UOVEF.PK

4. Long Term Growth
Top quality large banks have growth over the long term. So invest in them for many years. Its not uncommon for people in countries like Canada, UK hold bank stocks for generations and reap huge rewards. Many banks also expand into overseas markets to invest their excess cash reserves. For eg. Canadian banks like TD Bank, British banks like Barclays invest and grow in the US markets.

5. Stability:
Large high quality banks offer stability to one’s portfolio. There are many banks which are not “sexy” to own. But they move slowly and steadily over the long term. Just buy some for you portfolio and forget them for many years to make decent gains. Of course, in situations like today, bank stocks may seem like they do not offer any stability at all. But thats not true.

The reasons stated here are true for most foreign banks. However there are always exceptions and remember one cannot win all the time. Examples like Northern Rock of UK, Barings Bank come to mind. So do your own research and pick up some good quality ADR banks stocks today.:-)

See you here tomorrow.

Cheers !!
David
www.topforeignstocks.com