Investment for the Non Investor at Catch a Gideon

December 19th, 2006 by Endless Aspiration

I am just starting my career and I understand that by saving as much money as possible now, it will make saving for retirement much easier in the long run. My problem is, I don’t have time to actively trade securities and I have very little faith in the stock market or mutual funds. While I have my apprehensions, I believe there is enough oversight to make well informed decisions about where to invest my savings. Thanks to the “Mutual Fund Integrity and Fee Transparency Act of 2003” (PDF) and organizations such as Morningstar, I have faith in the system.

At this point in my life, I believe mutual funds are my best investment option. There is basically a mutual fund for every type of investment known to man. So whatever your risk tolerance is, there is a mutual fund out there for you. Generally stocks will be the riskiest investment followed by bonds and money market accounts. Choose a mutual fund with a good mix of Stocks and Bonds that fit within your risk tolerance. Generally the younger you are, the riskier you can be. A good rule of thumb is to use your age as the percentage of your portfolio you invest in stocks (if you are 20 years old invest 20% of you portfolio in bonds). Over the long run, the stock market will provide greater returns, but it will be much more volatile on a yearly basis.

When choosing a mutual fund, use Morningstar or Yahoo Finance to research the portfolio composition. Some will be composed of only stocks, other only bonds, and still other a good mix of the two. It is also important to find out what types of fees and expenses the Mutual Fund charges. Some Funds are loaded funds, others are No-Load funds. A loaded fund is a fund that will take a percentage of your investment, either when you put it in or you take it out. Funds will also take out management fees, which are usually based on a % of the assets you have invested in the fund. I would never invest in a fund that charges more than 1%. You also have to watch out for the 12b1 expense %, which is basically a commission paid to the person who accommodates the purchase of the fund.

In addition to paying attention to the fees that you are paying, the management of the mutual fund is extremely important. You might want to invest in foreign markets, small caps, or large caps and it is important to understand the investment strategy of the mutual fund. It is equally important to do some research on the mutual fund manager. They are essentially your own broker because they make the day to day decisions on how to manage the funds. Make sure the manager has a strong track record and is fully qualified to take care of your money.