I am newbie in mutual fund, I am wondering what's the benefit of mutual
fund, verse stock or index fund.
Can I say mutual fund is less risk than stock and index fund?
Especially when stock market go wild, like what happened in 2000?
Any other benefits? Thanks
wrote:
> I am newbie in mutual fund, I am wondering what's the benefit of mutual
> fund, verse stock or index fund.
>
An index fund is a mutual fund.
> Can I say mutual fund is less risk than stock and index fund?
> Especially when stock market go wild, like what happened in 2000?
>
A mutual fund gives you the benefit of diversification, which lessens
the risk of individual stock ownership. But it does not lessen the
risk of market fluctuations.
> Any other benefits? Thanks
thanks,
if mutual fund is just for diversification, then why each individual
investors do it by themselves, buy several stocks, instead just one or
two? any extra add-on value for mutual fund?
I am still thinking that it is hard to pursuade people pay big amount
of money to let other people pick stocks. If everyone has access to
company ranking report....
will online trading company like etrade, scott-trade dwell mutual fund
company?
Thanks
The transaction costs of maintaining a large portfolio of
stocks in companies that are reasonably strong is expensive,
particularly if one has under, say, $100,000 to invest.
The following has links to free consumer-oriented articles
about a specific type of mutual fund (index funds) that
might help your understanding.
You should also consider asking your question at
misc.invest.financial-plan .
<> wrote
>I am newbie in mutual fund, I am wondering what's the
>benefit of mutual
> fund, verse stock or index fund.
>
> Can I say mutual fund is less risk than stock and index
> fund?
> Especially when stock market go wild, like what happened
> in 2000?
>
> Any other benefits? Thanks
>
wrote:
> thanks,
>
> if mutual fund is just for diversification, then why each individual
> investors do it by themselves, buy several stocks, instead just one or
> two? any extra add-on value for mutual fund?
You have to have a certain amount of funds to diversify if you buy your
own stocks. With mutual funds small investors can achieve
diversification with small amounts of money.
>
> I am still thinking that it is hard to pursuade people pay big amount
> of money to let other people pick stocks. If everyone has access to
> company ranking report....
>
It's not a big amount of money if you pick the low cost mutual funds.
Buying individual stocks has costs associated with it too (e.g.
commission).
> will online trading company like etrade, scott-trade dwell mutual fund
> company?
>
Dwell?
> Thanks
"Elle" <> wrote
> The transaction costs of maintaining a large portfolio of stocks in
> companies that are reasonably strong is expensive, particularly if one has
> under, say, $100,000 to invest.
You don't need $100,000 to buy stocks affordably. This is the dumbest thing
I've heard today.
Example: Fidelity Global Balanced Fund. $10.000 invested in this fund will
cost $119 for the first year. $100,000 would cost $1,190. This equates to
170 trades at Scottrade.
Ed wrote:
> You don't need $100,000 to buy stocks affordably.
She didn't say you needed $100,000 to buy stocks affordably. She was
comparing the cost of managing your own diversified portfolio to match
that of a mutual fund.
> Example: Fidelity Global Balanced Fund. $10.000 invested in this fund will
> cost $119 for the first year. $100,000 would cost $1,190. This equates to
> 170 trades at Scottrade.
Well, that fund has 432 holdings, so if you were to match it, it would
cost you over $3000 at ScottTrade.
"Bucky" <> wrote
> Ed wrote:
>> You don't need $100,000 to buy stocks affordably.
>
> She didn't say you needed $100,000 to buy stocks affordably. She was
> comparing the cost of managing your own diversified portfolio to match
> that of a mutual fund.
>
>> Example: Fidelity Global Balanced Fund. $10.000 invested in this fund
>> will
>> cost $119 for the first year. $100,000 would cost $1,190. This equates to
>> 170 trades at Scottrade.
>
> Well, that fund has 432 holdings, so if you were to match it, it would
> cost you over $3000 at ScottTrade.
You don't need 432 stocks to be diversified. And Fidelity Global Balanced
has $215 million in assets. The cost to buy these stocks at Scottrade might
be $3,000 but that's only .0014% which is much less than the 1.17% expense
ratio. The fund is in 10 industry groups, 10 carefully selected stocks or
ADR's would do. $70 at Scottrade.
Jack wrote,
"thanks,
if mutual fund is just for diversification, then why each individual
investors do it by themselves, buy several stocks, instead just one or
two? any extra add-on value for mutual fund?
2 reasons - the need to buy so many different stocks (100-500) to
accomplish the same amount of diversification - with limited funds AND
the ability to pick specific stocks that are winners.
I am still thinking that it is hard to pursuade people pay big amount
of money to let other people pick stocks. If everyone has access to
company ranking report....
All depends upon what is a Big Amount of money. It does't have to be -
index funds are very cheap. An S&P500 index fund invests in all 500
companies the make up the index and the expense ratio is ~.25%. Do you
realize what your transaction costs would be to buy all 500 stocks -
even with a discount internet broker?
best,
rono
i see, thanks, that make sense.
Ed wrote:
> You don't need 432 stocks to be diversified. And Fidelity Global Balanced
> has $215 million in assets. The cost to buy these stocks at Scottrade might
> be $3,000 but that's only .0014% which is much less than the 1.17% expense
> ratio. The fund is in 10 industry groups, 10 carefully selected stocks or
> ADR's would do. $70 at Scottrade.
10 industry groups R.J. Mace, an appliance specialist, selected until
D. Young fills his position and selects something else -- which returns
to the old arguement: ratios between active management vrs indexed
returns. Nevermind individual investor care in selecting 10 ADRs or
foreign equities equal to Young. Few are trained or equipped to
account acquistions from any formal standpoint involving decisions in a
financial role;-- 5 and 10% daily swings when the fur is flying in
South America or Eastern Europe does tend to affect a sedentary
disposition. Discounting a few peons' attempt to eke out better than
the S&P and DOW through actively pursuing their own agenda elsewhere, a
majority of individual investors are not going to know, or particularly
care to, that Fidelity's Global holdings trail major domestic indexes
by 100%, as well as the ADRE composite, since its inception in 1993.
Fidelity is a big enough name to cover the global buzzword, and that
will be sufficent to the many grateful for a dole of foreign exposure.
Hi Jack,
Let's look at the costs further. If I was to buy Vanguard's 500 index
fund, the expense ratio is ~0.25% per year off the top. Let's say I
bought $10,000 of it. For this I'd get a 10k of a fund that invests in
all 500 stocks that make up the Standand & Poors 500 Index. It's a no
load fund and would therefore cost me ONLY the ER or $25 per year.
Now if I was to go with a discount broker and buy the same $10K worth
of shares split between all 500 stocks so that hopefully I owned all
500 (not sure if this is even possible) I would have to pay some
transaction fee for each purchase. Let's say we found a broker that
only charged $5 a trade. For my 500 stocks, that'd be $2500. And, as
mentioned, I'm not sure you could even buy one share of every stock on
the 500 for $10K.
Mutual funds allow the little guy to invest in a market basket of
stocks (to build a stock portfolio, if you will) quickly,
inexpensively, and with minimal funds with which to invest. He can
buy the index or pay someone (a larger ER) to pick stocks for him.
One other reason you need to learn about mutual funds is that most
employees anymore invest in mutual funds as part of their 401(K) and
often this is their 'pension'.
preace,
rono