What Are Mutual Funds? Understanding The Basics

If you’re one of those investors with very little time to research and invest in individual stocks, it might be a good idea to look into investing in mutual funds.

Whether your goal is to save money for retirement, or for a down payment to buy a house, mutual funds are low-cost and effective way to invest your money.

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What is a mutual fund?

A mutual fund is an investment vehicle in which investors, like you ad me, pool their money together. They use the money to invest in securities such as stocks and bonds. A professional manages the funds.

In addition, mutual funds are cost efficient. They offer diversification to your portfolio. They have low minimum investment requirements.

These factors make mutual funds among the best investment vehicles to use. If you’re a beginner investor, you should consider investing in mutual funds or index funds.

Investing in the stock market in general, can be intimidating. If you are just starting out and don’t feel confident in your investing knowledge, you may value the advice of a financial advisor.

Types of mutual funds

There are different types of mutual funds. They are stock funds, bond funds, and money market funds.

Which funds you choose depends on your risk tolerance. While mutual funds in general are less risky than investing in individual stocks, some funds are riskier than others.

However, you can choose a combination of these three types of funds to diversify your portfolio.

  • Stock funds: a stock fund is a fund that invests heavily in stocks. However, that does not mean stock funds do not have other securities, i.e., bonds. It’s just that the majority of the money invested is in stocks.
  • Bond funds: if you don’t want your portfolio to fluctuate in value as stocks do, then you should consider bond funds.
  • Money market funds: money market funds are funds that you invest in if you tend to tap into your investment in the short term.
  • Sector funds. As the name suggests, sector funds are funds that invests in one particular sector or industry. For example, a fund that invests only in the health care industry is a sector fund. These mutual funds lack diversification. Therefore, you should avoid them or use them in conjunction to another mutual fund.

Additional funds

  • Index funds. Index funds seek to track the performance of a particular index, such as the Standard & Poor’s 500 index of 500 large U.S. company stocks or the CRSP US Small Cap Index. When you invest in the Vanguard S&P 500 Index fund, you’re essentially buying a piece of the 500 largest publicly traded US companies. Index funds don’t jump around. They stay invested in the market. 
  • Income funds: These funds focus invest primarily in corporate bonds. They also invest in some high-dividend stocks.
  • Balance funds: The portfolio of these funds have a mixed of stocks and bonds. Those funds enjoy capital growth and income dividend.

Related Article: 3 Ways to Protect Your Portfolio from the Volatile Stock Market

The advantages of mutual funds

Diversification. You’ve probably heard the popular saying “don’t put all of your eggs in one basket.” Well, it applies to mutual funds. Mutual funds invest in stocks or bonds from dozens of companies in several industries.

Thus, your risk is spread. If a stock of a company is not doing well, a stock from another company can balance it out. While most funds are diversified, some are not.

For example, sector funds which invest in a specific industry such as real estate can be risky if that industry is not doing well.

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Professional Management.

Mutual funds are professionally managed. These fund managers are well educated and experienced. Their job is to analyze data, research companies and find the best investments for the fund.

Thus, investing in mutual funds can be a huge time saver for those who have very little time and those who lack expertise in the matter.

Cost Efficiency. The operating expenses and the cost that you pay to sell or buy a fund are cheaper than trading in individual securities on your own. For example, the best Vanguard mutual funds have operating expenses as low as 0.04%. So by keeping expenses low, these funds can help boost your returns.

Low or Reasonable Minimum Investment. The majority of mutual funds, Vanguard mutual funds, for example, have a reasonable minimum requirement. Some funds even have a minimum of $1,000 and provide a monthly investment plan where you can start with as little as $50 a month.

Related Article: 7 Secrets Smart Professionals Use to Choose Financial Advisors

The disadvantage of mutual funds.

While there are several benefits to investing in mutual funds, there are some disadvantages as well. 

Active Fund Management. Mutual funds are actively managed. That means fund mangers are always on the look out for the best securities to purchase. That also means they can easily make mistakes.

Cost/expenses. While cost and expenses of investing in individual stocks are significantly higher than mutual funds, cost of a mutual fund can nonetheless be significant.

High cost can have a negative effect on your investment return. These fees are deducted from your mutual fund’s balance every year. Other fees can apply as well. So always find a company with a low cost. 

How you make money with mutual funds.

You make money with mutual funds the same way you would with individual stocks: dividend, capital gain and appreciation.

Dividend: Dividends are cash distributions from a company to its shareholders. Some companies offer dividends; others do not. And those who do pay out dividends are not obligated to do so. And the amount of dividends can vary from year to year.

As a mutual fund investor, you may receive dividend income on a regular basis.

Mutual funds offer dividend reinvestment plans. This means that instead of receiving a cash payment, you can reinvest your dividend income into buying more shares in the fund.

Capital gain distribution: in addition to receiving dividend income from the fund, you make money with mutual funds when you make a profit by selling a stock. This is called “capital gain.”

Capital gain occurs when the fund manager sells stocks for more he bought them for. The resulting profits can be paid out to the fund’s shareholders. Just as dividend income, you have the choice to reinvest your gains in the fund.

Appreciation: If stocks in your fund have appreciated in value, the price per share of the fund will increase as well. So whether you hold your shares for a short term or long term, you stand to make a profit when the shares rise. 

Best mutual funds.

Now that you know mutual funds make excellent investments, finding the best mutual funds can be overwhelming. 

Vanguard mutual funds.

Vanguard mutual funds are the best out there, because they are relatively cheaper; they are of high quality; a professional manage them; and their operating expenses are relative low. 

Here is a list of the best Vanguard mutual funds that you should invest in:

  • Vanguard Total Stock Market Index Funds
  • Vanguard 500 Index (VFIAX)
  • Total International Stock index Fund
  • Vanguard Health Care Investor

Vanguard Total Stock Market Fund 

If you’re looking for a diversified mutual fund, this Vanguard mutual fund is for you. The Vanguard’s VTSAX provides exposure to the entire U.S. stock market which includes stocks from large, medium and small U.S companies.

The top companies include Microsoft, Apple, Amazon. In addition, the expenses are relatively (0.04%). It has a minimum initial investment of $3,000, making it one of the best vanguard stock funds out there.

Vanguard S&P 500 (VFIAX)

The Vanguard 500 Index fund may be appropriate for you if you prefer a mutual fund that focuses on U.S. equities. This fund tracks the performance of the S&P 500, which means it holds about 500 of the largest U.S. stocks.

The largest U.S. companies included in this fund are Facebook, Alphabet/Google, Apple, and Amazon. This index fund has an expense ration of 0.04% and a reasonable minimum initial investment of $3,000.

Vanguard Total International Stock Market

You should consider the Vanguard International Stock Market fund of you prefer a mutual fund that invests in foreign stocks.

This international stock fund exposes its shareholders to over 6,000 non-U.S. stocks from several countries in both developed markets and emerging markets. The minimum investment is also $3,000 with an expense ratio of 0.11%.

Vanguard Health Care Investor

Sector funds are not usually a good idea, because the lack diversification. Sector funds are funds that invest in a specific industry like real estate or health care. However, if you want a fund to complement your portfolio, the Vanguard Health Care Investor is a good choice.

This Vanguard mutual fund offers investors exposure to U.S. and foreign equities focusing in the health care industry. The expense ration is a little bit higher, 0.34%. However, the minimum initial investment is $3,000, making it one of the cheapest Vanguard mutual funds.

Bottom Line

Mutual funds are great options for beginner investors or investors who have little time to research and invest in individual stocks. When you buy into these low cost investments, you’re essentially buying shares from companies.

Your money are pooled together with those of other investors. If you intend to invest in low cost investment funds, you must know which ones are the best. When it comes to saving money on fees and getting a good return on your investment, Vanguard mutual funds are among the best funds out there.

They provide professional management, diversity, low cost, income and price appreciation.

What’s Next: 5 Mistakes People Make When Hiring A Financial Advisor

Speak with the Right Financial Advisor

  • If you have questions beyond knowing which of the best Vanguard mutual funds to invest, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
*TOP CIT BANK PROMOTIONS*
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CIT Bank Money Market 1.00% APY Review
CIT Bank Savings Builder 0.95% APY Review
CIT Bank CDs 0.75% APY 1 Year CD Term Review
CIT Bank No Penalty CD 0.75% APY Review

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How Much Is Enough For Retirement?

If you’re thinking about how much is enough for retirement, you’re probably contemplating a retirement and need to know how to pay for it. If you are, that’s good because one of the challenges we face is how we’re going to fund our retirement.

Determining then how much retirement savings is enough depends on a number of factors, including your lifestyle and your current income. Either way, you want to make sure that you have plenty of money in your retirement savings so you don’t work too hard, or work at all, during your golden years.

If you’re already thinking about retirement and you’re not sure whether your savings is in good shape, it may make sense to speak with a financial advisor to help you set up a savings plan.

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  • 5 Tips to Optimize Your Retirement Account Withdrawals Read Now
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How Much Is Enough For Retirement?

Your needs and expectations might be different in retirement than others. Because of that, there’s no magic number out there. In other words, how much is enough for retirement depends on a myriad of personal factors.

However, the conventional wisdom out there is that you should have $1 million to $1.5 million, or that your retirement savings should be 10 to 12 times your current income.

Even $1 million may not be enough to retire comfortably. According to a report from a major personal finance website, GoBankingRates, you could easily blow $1 million in as little as 12 years.

GoBankingRates concludes that a better way to figure out how long $1 million will last you largely depends on your state. For example, if you live in California, the report found, “$1 Million will last you 14 years, 3 months, 7 days.” Whereas if you live in Mississippi, “$1 Million will last you 23 years, 2 months, 2 days.” In other words, how much is enough for retirement largely depends on the state you reside.

For some, coming up with that much money to retire comfortably can be scary, especially if you haven’t saved any money for retirement, or, if your savings is not where it’s supposed to be.

Related topics:

How to Become a 401(k) Millionaire

Early Retirement: 7 Steps to Retire Early

5 Reasons Why You Will Retire Broke

Your current lifestyle and expected lifestyle?

What is your current lifestyle? To determine how much you need to save for retirement, you should determine how much your expenses are currently now and whether you intend to keep the current lifestyle during retirement.

So, if you’re making $110,000 and live off of $90,000, then multiply $90,000 by 20 ($1,800,000). With that number in mind, start working toward a retirement saving goals. However, if you intend to eat and spend lavishly during retirement, then you’ll obviously have to save more. And the same is true if you intend to reduce your expenses during retirement: you can save less money now.

The best way to start saving for retirement is to contribute to a tax-advantaged retirement account. It can be a Roth IRA, a traditional IRA or a 401(k) account. A 401k account should be your best choice, because the amount you can contribute every year is much more than a Roth IRA and traditional IRA.

1. See if you can max out your 401k. If you’re lucky enough to have a 401k plan at your job, you should contribute to it or max it out if you’re able to. The contribution limit for a 401k plan if you’re under 50 years old is $19,000 in 2019. If you’re funding a Roth IRA or a traditional IRA, the limit is $6,000. For more information, see How to Become a 401(k) Millionaire.

2. Automate your retirement savings. If you’re contributing to an employer 401k plan, that money automatically gets deducted from your paycheck. But if you’re funding a Roth IRA or a traditional IRA, you have to do it yourself. So set up an automatic deposit for your retirement account from a savings account. If your employer offers direct deposit, you can have a portion of your paycheck deposited directly into that savings account.

Related: The Best 5 Places For Your Savings Account.

Life expectancy

How long do you expect to live? Have your parents or grandparents lived through 80’s or 90’s or 100’s? If so, there is a chance you might live longer in retirement if you’re in good health. Therefore, you need to adjust your savings goal higher.

Consider seeking financial advice.

Saving money for retirement may not be your strong suit. Therefore, you may need to work with a financial advisor to boost your retirement income. For example, if you have a lot of money sitting in your retirement savings account, a financial advisor can help with investment options.

Bottom Line:

Figuring out how much is enough for retirement depends on how much retirement will cost you and what lifestyle you intend to have. Once you know the answer to these two questions, you can start working towards your savings goal.

How much money you will need in retirement? Use this retirement calculator below to determine whether you are on tract and determine how much you’ll need to save a month.

More on retirement:

  • Find Out Now 7 Questions People Forget to Ask Their Financial Advisors
  • 7 Mistakes Everyone Makes When Hiring a Financial Advisor
  • Compare Fiduciary Financial Advisors — Start Here for Free.
  • 7 Situations When You Need a Financial Advisor – Plus How to Find One Read More
  • 5 Tips to Optimize Your Retirement Account Withdrawals Read Now
  • People Who Retire Comfortably Avoid These Financial Advisor Mistakes

Working With The Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How Much Is Enough For Retirement? appeared first on GrowthRapidly.

Source: growthrapidly.com

Accredited Asset Management Specialist (AAMS)

What is the AAMS certification?New financial advisors need something to help them stand out. Consequently, the AAMS does just that. Designed for newcomers to the financial advice business, the AAMS trains advisors to identify investment opportunities as well as help clients with other financial goals. It also gives more experienced advisors a fast and simple way to learn more about asset management and improve their credentials. Here’s how it works.

AAMS Defined

An Accredited Asset Management Specialist (AAMS) can advise clients on college savings, taxes, and retirement savings. The course and tests for this certification are designed to ensure advisors can assist clients with their complete financial needs. It emphasizes evaluating the client’s assets and making appropriate recommendations.

The AAMS certification is granted by the College for Financial Planning, a unit of the Kaplan Company. The college oversees a large number of financial certification programs, including the Certified Financial Planner designation, one of the most valued certifications in the field.

AAMS Certification Requirements

What is the AAMS certification?

To receive an AAMS, students first have to complete a 10-module education program provided by the College for Financial Planning. Then they have to pass an examination. Finally, they must agree to abide by a code of ethics and promise to continue their education.

The courses are online and can be delivered in self-study or instructor-led formats. Courses are open-enrollment, therefore students can begin at any time without waiting for the next session.  The 10 modules cover the following material:

1.:The Asset Management Process

2. Risk, Return & Investment Performance

3. Asset Allocation & Selection

4. Investment Strategies

5. Taxation of Investments

6. Investing for Retirement

7. Deferred Compensation and Other Benefit Plans

8. Insurance Products for Investment Clients

9. Estate Planning for Investment Clients

10. Fiduciary, Ethical, and Regulatory Issues for Advisors

The College of Financial Planning provides everything necessary to study for and complete the modules and take the test. Students have access to the study materials and tests through an online portal.

Streaming video lectures, audio files, and interactive quizzes also can be found through the college’s site. Meanwhile, students can access live classes online and contact professors with questions and issues.

The AAMS Test

To get the AAMS certification, students have to pass just one test. However, they have to make their first attempt at the test within six months of enrollment and pass it within a year.

The fee for the first attempt at taking the test is included in the course tuition. There are no prerequisites for signing up to take the AAMS course.

Time and Money Requirement

Tuition for the AAMS courses is $1,300. This includes the fee for the first attempt at passing the certification exam. It also includes all needed course materials. Each additional attempt costs $100.

Students employed with certain financial services firms may be able to get tuition discounts. The college may also provide scholarships.

The College for Financial Planning recommends students plan to spend 80 hours to 100 hours on the course. Since the course is self-study, this amount of time is flexible.

To maintain AAMS certification students have to commit to completing 16 continuing education credits every two years. Also, continuing education has to cover one or more of the topics covered in the AAMS coursework.

AAMS certificate holders also have to agree to follow a professional standard of conduct. As a result, they have to maintain integrity, objectivity, competency, confidentiality and professionalism in providing financial services.

AAMS Certificate Holder Jobs

AAMS certificates are generally earned by entry-level workers in the financial advice business. Consequently, AAMS holders are typically trainees. In some cases, they may provide support services to more experienced and highly credentialed advisors.

The AAMS designation does not confer any special powers or privileges. Instead, it’s an optional credential that students may obtain to advance their careers and enhance their knowledge of financial advice.

Comparable Certifications

What is the AAMS certification?

In addition to the AAMS, the College for Financial Planning offers an Accredited Wealth Manager Advisor (AWMA) certificate. This is a somewhat more advanced designation. As a result, it requires a course equivalent to three graduate level college credits and requires 90 hours to 135 hours to complete.

Chartered Mutual Fund Counselor (CMFC) is sponsored by the Investment Company Institute along with the College of Financial Planning. It is similar to the AAMS certificate except it focuses on mutual fund assets.

Accredited Financial Counselor (AFC) is a general personal finance advice certificate from the Association for Financial Counseling and Planning Education. First, it requires 1,000 hours of financial counseling experience. Secondly, it demands three letters of reference. Finally, applicants must both complete coursework and pass an exam.

Bottom Line

The AAMS designation is usually for newly minted financial advisors, but even experienced pros can use it to bulk up their credentials. The courses and tests associated with the AAMS teach advisors how to evaluate assets and make recommendations.

While this certification doesn’t give an advisor any real powers, it’s a sign that they can identify investment opportunities specific to their clients. Above all else, it can be a great relief to a client who has a child going to college or a retirement house on their wish list. As a result of obtaining an AAMS, and advisor can point them toward the right investments for their goals.

Investing Tips

  • If you’re looking to identify investment opportunities, consider using an AAMS as your advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • An AAMS can help you with college savings, taxes, and retirement savings if you know what your goals are. However, if you are unsure how much you want to invest, what your risk tolerance is, or how inflation and capital gains tax will affect your investment, SmartAsset’s investing guide can help you take the first steps.

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