Every one considers the mutual fund at one point in their life. It sounds safe. It sounds sure. But what is it really?
Well, it's a good debate topic. Instead of investing in a stock, in which you generally have no control over the performance of the return, you can invest in a mutual fund (MF), where a licensed broker will manager a portfolio of stocks in order to return the most stable return.
On the outside, we can see the following analogy when you trying to get your money from point A to Point Z:
Stocks = "riding in a car with no steering wheel" - Mr. Kiyosaki
MF = riding in a car with a taxi driver (Yes, he has a steering wheel... or does he?)
That's usually how MFs are sold anyway. There are two major types of MFs: Registered (RSP), and Non-registered.
RSPs usually require a minimum amount to be inputed every month. That amount is also taken before taxes, and will not be taxed. Returns are generally higher than Non-registered MFs; however, your money will be locked in for some time.
Non-registered MFs allow a lot more flexibility and act a little bit more like a savings account. Somewhere along the line, the bank opened a "savings account" for me that was really a Non-registered MF. As soon as I decide what I want to do with that money, I can redeem it. Except that:
** An early redemption fee may apply if this Fund is redeemed or transferred within 30 days of purchase. (90 days for certain e-Series units). Please see the Fund’s Prospectus for details.
It's a difficult debate because mutual funds definitely have shown returns, but are the right things to do with your money?
My dad told me a story once about how he lost a bunch of money in the stock market after a big crash. He then decided that it was safer to invest in a mutual fund, so he dumped his money in an MF. A few days later the market went back up again, but the money in his MF did not change. The moral of the story is: how can anything be a real worthy investment if it doesn't respond to the market. My dad still doesn't believe in MFs.
If the market isn't in control of a mutual fund investment, then who is?
A lot of MF brokers will tell you than they can get you to point Z in 50 years, and chances are that they can. But your money will be locked in for the long run.
What do you want to do with your money?
If you want to be an investor, then do your homework and invest in the things that will bring you to point Z faster without tying up your cash.
If you don't know what you're doing, or do not want to do anything with your money, then perhaps a mutual fund is worth considering.
B.L.I.P. Heros
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4 comments:
I thought I would just read this and go to bed but my pride wouldn't let me. It kept saying "Write something. Be someone. Pretend like someone cares about your opinion". Well. The good news is that no one cares and no one even knows about this blog. And even if they did, I'm still gonna post whatever I want whenever I want because I'm an arrogant student! You know! One of those freaks who has to question everything the professor says. Ok. I'm not one of those. I wanted to pummel one of those.
I heard a cool description of RRSPs. Was it Kiyosaki? Anyways, I think it's really good.
"Being chained to an airplane." I think this analogy is best because every time we get in an airplane we take a risk (or at least feel that way even thought stats will show us that planes are safer that cars, and certainly moreso than taxis!). So, as the analogy goes, the plan starts lifting up and you're bloomin' glad you're stuck to this airborn gold mine. Don't cut that chain, baby! We're going up!
...but then...the market crashes....and the plane starts rapidly descending. You look for the exit and..wait. You're chained to it for the long run! Out the exit jump the stock boys as they sell. Out the door jump the real estate boys because it's fun and they're already retired. There are only two choices left now - cut your arm off and jump, or die in a blaze of glory. *Insert triumphant Bon Jovi tracks here*
Such is an RRSP. "invest for the long term"
And of course MFs, so far as I understand them, are just volotile RRSPs aren't they?
So, you can see that I know HOW they work, but i still don't know what they are! I hope the analogy was entertaining.
A second item I"d like to comment on is the whole stock thing. Originally I was all 'anti stock' until I met my current ESL student. He's doing pretty dang good and he's a classic trader if you will. The difference between him and I are as follows:
1. He is making money. And it seems like quite a bit.
2. He knows a lot. In fact, he knows more than probably any 'normal' person I've ever spoken to about stocks.
3. He's passionately interested in stocks.
So, I figured out that I can make money if I have his knowledge, wisdom (he had some hard knocks learning I'm sure). The only item that concerns me is being passionately interested. I want to be. I have been. But it takes serious diligence and sacrifice of time. He scorned me when he heard that I bought a stock based on the fact that it can't get lower and looks cool. He said he could have tripled my money if I gave it to him. I ate some humble pie and agreed.
The rule with stocks and mf's is the same. You have to research the company, look at historical data, balance sheets and have an idea of how economical changes will affect your purchase.
Now, I can understand how Mr. Taylor the first can mess up because the stocks he bought were based on the fact that he thinks we are in the biblical "end times". If that happend to be true, then your investments won't matter. The bad guys will be raptured, and as the JW's say, "we can live in paradise on earth". Maybe paradise means stocks will go up. Maybe we can all have active trader status when Christ reigns.
Anyhow, All that to say that you need to find undervalued companies and buy in. I've spent the time looking, and they're few and far between but I've made some good calls. However, emotionally charged, I've made some really bad ones too. But it's like Peter Lynch says, if you buy a company where the sum of the assets equals the stock price, then you get the company for free. I made a really confident call on moneymash involving "spf.un". I said it will go to $16 from the current price of $11. I also said when it hits 16 there will be a bump. Sure enough it went to 16.30ish, and fell back to $12 in the great selloff of '07.
How did I make the call you ask? Because the sum of the assets (Land, Equipment) was almost the same as the stock. I got the company for free.
Anyhow, when the market is volatile, people don't use their brains to invest. They jump ship because they see a mouse in the hold.
Good news, gents. I just met with my Korean investment Konnection (KIK) (the gentleman I spoke of earlier) and we had a good chance to see how well he could explain his ideas about mutual funds in English. Good news. His English was more than sufficient and I learned a great deal as he explained his views. Here is an attempt to summarize the conversation:
Pros of MFs
-they are easy (good for the average Joe, but not a Disposable Joe)
-they generally, even after considering stock market crashes, move to the upper right of the stock market
-they usually include a mix of rock solid companies and less solid so that if a couple were to go belly up, it wouldn't bankrupt the investor
Cons of MFs
-no control (we spoke of this in the analogies before)
-It is very hard to discern the timing. Let me babble about this one for sec because it was good and new to me. He said that the stock market themselves usually start around 100 points and then experience a sharp spike to the right. They go from around 100 points to 1000 points in 10 years. Then, they experience a massively long plateau that can last 10-20 years. After that they jump again. The problem, he said, is that it's very hard, if not impossible, to tell where you are in the process. Obviously you want to buy before the spike and this, he said, is very tricky to do. Some suggestions he offered were to stay massively connected to the stock news (business papers, etc) and increase awareness. For example (and take note if you have a few bux kickin' round) the NYSE is plateauing as we speak for obvious reasons. However, all of a sudden the Korean market started to spike recently. With a strong loonie, we can swap CND to KRW, score on the exchange and then score again in the market. Let's talk about this a bit more, eh?
Mr. Song actually taught a lecture on MFs in Korea a few years ago when the concept was very new. Only recently have MFs started picking up in popularity there.
Finally, he suggested that we start looking at the commodity markets and watching how the stock market and the commodity market tend to move in a converse relationship. He gave a neat example of the price of wheat increasing, so that the bakeries have to charge more, and then the stores have to charge more reducing the profit margin for everyone, leading to an obvious drop in those markets that rely on commodities.
Ok. That's it for today on that. Good stuff. Let's definitely talk Korea soon.
I wouldn't invest in korea, because by the time the bad news gets translated, everyone sold.
It's like the doctor who invests in oil, and the oilman investing in pharma. You need to invest in something you know, and can keep track of. I made 30% in a week on a stock recently. I simply bought a stock based on BC's current situation with beetle kill, and the governments promise to replant the trees in the next 50 years. The company is in Prince George. I used to work there. If drywallers knew how to use a computer and list their company on a market, then I would buy them too. Unfortunately, most of their profit goes in their lungs and up their nose.
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