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Monday, February 1st, 2010ETFs & Mutual Funds Compared
Sunday, January 17th, 2010ETFs, exchange traded funds, and mutual funds are both investor packages that manage investors’ money. They are managed by professionals for the benefit of the investors, who own shares in them. This basic investor guide will highlight how they are similar, and how they differ from each other.
Both ETF’s and mutual funds are baskets of investments. When you own shares in them, you own a small part of the basket, which consists of a collection (portfolio) of investments. However, they work differently, and you invest in them differently.
Mutual funds are unique because they are open-ended. They have no fixed number of shares, and their shares are not traded on exchanges. When investors buy shares, their money goes into the fund and is added to the investor pool of assets to be managed by the mutual fund. New shares are issued to the individual investor, and the pool of assets in the fund gets larger.
When investors want to liquidate (sell) shares, the transaction again goes through the mutual fund company. In the process assets are taken from the pool of assets to pay the individual who is exchanging his shares for cash. Those shares then no longer exist, and the collective pool of assets becomes smaller.
Mutual funds belong to a mutual fund family, and offer investors numerous features. For example, you can switch from one fund to another within the family, or you can purchase shares on a monthly plan. If, however, you want to buy or sell shares and need a quick transaction…they were not designed to do that.
ETFs are actually index funds that are managed to track an index. They trade like stocks on major exchanges. For example, (SPY) tracks the S&P 500 stock index. There are also mutual funds that are index funds as well, including S&P 500 index funds that track the S&P 500 index.
The difference is that ETFs are not open-ended. The number of shares outstanding is fixed…similar to GE, Microsoft and other corporations whose stocks trade on major exchanges. Once shares are initially sold, the corporation (or the fund) has its money for operations, or to manage in the case of an ETF. Then these shares trade in the market.
To keep our investor guide simple, when you or I buy or sell ETF shares or shares of GE etc., we are simply buying or selling existing shares as they trade in the market. We do this through the services of a brokerage firm, and can make transactions throughout the business day. With an ETF, your order to buy or sell is executed within seconds.
ETFs have become very popular with active investors. Some track the major market indexes, others track industries or sectors. For example, if you want to invest in oil stocks, gold stocks, or real estate stocks, there are ETFs that track those sectors. If you are interested in bonds, there are bond ETFs that track bond indexes.
As a basic investor guide, if you are a long-term investor who wants features and flexibility in your investment package, stick with mutual funds. If you want to play the market, you need the instant liquidity of ETFs.
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.
Importance of saving money for children’s education
Monday, November 16th, 2009Educating Children the Importance of Saving
Education and inspiring children to save money allows them to utilize their money sensibly in their adult life.
Spending and saving resolutions made in their childhood can have an impact on their financial expectations and in addition influence investment choices they may ever make.
As shortly as children can count up, they should be introduced to money with the goal of laying a concrete foundation for financial responsibility, which assists them to make excellent spending resolutions in future.
Personal finance specialists suppose that people who don’t learn on handling cash at a young age regularly mishandle their finances in their later life.
Consequently, parents are counseled to educate children the essentials of saving and spending in their early years.
-To offer youngsters a free hand in managing their finances, they should be permitted to make withdraws from their savings fund and make their personal spending resolutions – whether good or bad – to allow them learn how to make sovereign resolutions.
-A normal family converse would assist younger children to frankly talk regarding cash. It is at such discussions that they can collect information on how to build savings and how to spend. Through such meetings, they can be able to realize the essentials of financial choice making and they should be educated that they can’t obtain everything they want.
-At a gentle age, youngsters should be taught the dangers of borrowing and paying interest. A parent or custodian should indict interest on small loans made to them; this assists them recognize how costly it is to utilize somebody else’s money. This worth can be grained in them through goal-setting sessions for what they require, for example toys. These sessions assist them to prioritize how to spend.
-A lot of youngsters suppose automated teller machines are magic machines that eject money at the touch of a button. But, children should be made to realize that to obtain money out of an ATM, deposits should be made – and that this is just achievable by earning through working. Parents should make the notion that employment allows a person to pay bills, rent, food, clothing and entertainment.
-Whilst utilizing a credit card, parents should take the chance to educate children on how the card works. They should be shown how to confirm charges, how to analyze interest, and how to safeguard against credit fraud. They should be informed of the high interest charged for cash advance using the card and further penalizing fines that come with plastic money.
-Children should in addition be encouraged to keep reports of cash saved or invested. This is an essential exercise that will introduce them to the skill of book-keeping.
-Parents should express the notion of earning interest income on savings. This can be completed by replenishing on what they save as it assists children see how quick money accrues through the power of compound interest. This effortless exercise assists them recognize how savings accounts earn interest.
-Opening bank accounts allows children to discover how banks functions.
Investing for Retirement
Sunday, July 26th, 2009Retirement may be a long way off for you – or it might be right around the corner. No matter how near or far it is, you’ve absolutely got to start saving for it now. However, saving for retirement isn’t what it used to be with the increase in cost of living and the instability of social security. You have to invest for your retirement, as opposed to saving for it!
Let’s start by taking a look at the retirement plan offered by your company. Once upon a time, these plans were quite sound. However, after the Enron upset and all that followed, people aren’t as secure in their company retirement plans anymore. If you choose not to invest in your company’s retirement plan, you do have other options.
First, you can invest in stocks, bonds, mutual funds, certificates of deposit, and money market accounts. You do not have to state to anybody that the returns on these investments are to be used for retirement. Just simply let your money grow overtime, and when certain investments reach their maturity, reinvest them and continue to let your money grow.
You can also open an Individual Retirement Account (IRA). IRA’s are quite popular because the money is not taxed until you withdraw the funds. You may also be able to deduct your IRA contributions from the taxes that you owe. An IRA can be opened at most banks. A ROTH IRA is a newer type of retirement account. With a Roth, you pay taxes on the money that you are investing in your account, but when you cash out, no federal taxes are owed. Roth IRA’s can also be opened at a financial institution.
Another popular type of retirement account is the 401(k). 401(k’s) are typically offered through employers, but you may be able to open a 401(k) on your own. You should speak with a financial planner or accountant to help you with this. The Keogh plan is another type of IRA that is suitable for self employed people. Self-employed small business owners may also be interested in Simplified Employee Pension Plans (SEP). This is another type of Keogh plan that people typically find easier to administer than a regular Keogh plan.
Whichever retirement investment you choose, just make sure you choose one! Again, do not depend on social security, company retirement plans, or even an inheritance that may or may not come through! Take care of your financial future by investing in it today.
Targeting your investment strategy
Tuesday, June 30th, 2009The United States stock market is a ” Breakfast buffet” , to the investor . You go in and eat the wrong thing and you get heart burn . With out guidance and strategy in your pocket , you just might as well go to Las Vegas . Investing should be a well thought out plan to your financial security . It is your money that you work hard for , why just throw it away .
You can be an aggressive investor , just do the research and just like going to the doctor , get a second opinion .
I use to think T-bills and bonds were the way to go , I learned over the years that to have a healthy portfolio , you have to spread your investing in to different areas . Having all your eggs in one basket may be safe , but it often hampers the growth of your assets . You can find markets that are good money makers , with the right planning and well balanced portfolio , targeting your strategy will be some what easier .
The hard part is finding a good financial adviser , one that will help you understand market fluctuations and yields . He should have your best interest at heart , knowledge of tax laws can be beneficial to investing strategy . The adviser will go over all the necessary , tax implications of investing and selling that would affect your portfolio strategy . Every one wants to be able to retire someday , to get there you have to see five moves ahead . Like a game of chess , you see all the moves you need to make , before you move your game piece . The Stock market is the same way , be smart and take your time .