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I inherited a bunch of mutual funds as part of the assets of a trust. I just logged into my brokerage account yesterday and there are dozens of them. I was sort of shocked.
To be perfectly honest, investing bores and intimidates me. My eyes just glaze over when people talk about it. The funds are being managed by my mom's advisor, and I plan to speak to him more specifically, but I really don't know what to say or where to start. I am like millions of Americans who just socks away money in a savings account and ignores it. An IRA is about as complicated as I get.
Can someone just give me a dumbed down version of what mutual funds are, what they are for, and basic strategies people use when dealing with these?
what mutual funds are,
Groups of stocks and/or Bonds etc, that are bought by the 'Fund' sponsor and then sold to you. (Note: some Funds have a 'load' you pay a % to buy and/or sell them, (some also pay commissions to the investment advisor who sell them to you). "No-Load" fund you do not pay $ to buy/sell them. All funds have investment management fees that are built into there Prices. ie: Fund is payed (.05% divided by 360days) on each days $'s under management, for pay for the fund managers and the back-office to support your account.
What they are for,
Allow someone with limited funds to be in the market, and have a larger basket of companies, then you could buy on your own.
and basic strategies people use when dealing with these?
Find a fund that matches your investment objectives, buy and don't watch it day by day.
I inherited a bunch of different funds from my mother (in ridiculously small holdings - 7 shares of this, 3 shares of that, etc.) I don't know of any rational investing strategy that supports holding an overly-vast array of mutual funds. However, note that if you have significant gains to claim, there will be a tax hit from liquidating them. (I'm not sure about how inheritance from a trust differs from direct inheritance. With direct inheritance, the taxation is on the entire estate, as of the values as of the date of death, so theoretically you can just sell it all as soon as you get control over it, and you'll have very little gain to account for, on that which was realized between the date of death and the date you gained control.)
I think financial advisors kept telling my mother to do this or that, intended specifically to garner certain promotional bonuses or other kick backs for themselves. At least that's the only explanation I can come up with for what I saw.
I suppose I would sell it all, before you get so heavily invested in it such that it would represent significant capital gains if you sold. If you have debts (other than mortgage debts) paying them off is often the best investment you can make. If you're debt-free, then it is time to start learning more about investing for your future.
Problem with mutual funds is they can be high risk,sure you may make big returns on investment but you could also lose all your money depending on where the mutual fund manager is investing those funds. If you arent into risk i'd not put too high a percentage of my investment portfolio in mutual funds and instead put a larger percentage of it in slower growing investments like guaranteed investment funds or funds where you never lose the actual capital you initially put in.. all depends on the level of risk you want to take..
The funds have been distributed out of the trust-- my sisters and I each have an equal share. There are a few hundred thousand invested all told in these funds. From my understanding, this is just the beginning of the investment distributions. The management has been done up until this point by Wells Fargo.
Do I need to find a different manager? Does this all sound legit?
Problem with mutual funds is they can be high risk
Some are high risk, some are lower risk. Same as many other types of investments. The only investments without any high risk options have a guarantee of loss of real value.
Quote:
Originally Posted by jambo101
instead put a larger percentage of it in slower growing investments like guaranteed investment funds or funds where you never lose the actual capital you initially put in.
But you still lose real value. There is no clear-cut solution.
I inherited a bunch of mutual funds as part of the assets of a trust. I just logged into my brokerage account yesterday and there are dozens of them. I was sort of shocked.
To be perfectly honest, investing bores and intimidates me. My eyes just glaze over when people talk about it. The funds are being managed by my mom's advisor, and I plan to speak to him more specifically, but I really don't know what to say or where to start. I am like millions of Americans who just socks away money in a savings account and ignores it. An IRA is about as complicated as I get.
Can someone just give me a dumbed down version of what mutual funds are, what they are for, and basic strategies people use when dealing with these?
First, you have to understand a common stock is just a representation of fractional ownership in a company. There are thousands of stocks out there, US, foreign, large, small, etc. Holding one share of common stock in IBM means you own like, .0000000000000001% of the company, and are entitled to that percentage of their overall return over time (either in stock price appreciation, which you can sell to other investors), or dividends (returning some cash the company has made it can't reasonably invest in growth). People buy stocks because they think they will get more money back when they sell it than they bought it for, beating inflation over the same time-full stop. There's no other reason to invest. Sometimes they DO get more money back (a gain), sometimes they don't (a loss). Almost no investment is a guaranteed return above the rate of inflation (those that are tend to be very, very small returns and the provider is arbitraging betting they can make more by using your money, investing it, and giving you the guaranteed return and pocketing return above that percentage) but evidence suggests over a very long time frame, you are likely to make a gain in stocks.
Then you need to know an 'index' is the *entire* or close to the entire group of stocks or bonds that fit a certain category-e.g., the S&P 500 is 500 of the largest stocks in the US that are widely held. An S&P 500 index is a quote of what all 500 stocks currently in the index are worth at a given moment. If the S&P is 'up 1.7% that day, it means the overall group of 500 stocks' prices are up 1.7% that day-some will be down, some will be up, but all 500 together are 1.7% higher than the day before. Not every index is broad-for instance, there is a tech index of only tech companies. The 'market return' is usually one of the very broadly held or widely followed indexes: NASDAQ, S&P 500, even Dow Jones (which is only 30 stocks, but they're 30 pretty important stocks).
A mutual fund is just an account where the manager buys a bunch of stocks/bonds, depending on the goals of the fund. Then a person can, instead of buying all those stocks and bonds, just buy a share of the fund. If a fund is invested in 94 stocks, buying one share represents a very small fractional share in each of those 94 stocks, but you don't have to worry about buying 94 stocks (with the associated transaction fees, as the market isn't operating to sell you the stock out off the goodness of its heart).
'Active' funds have a goal of investing in stocks and bonds that they believe will produce superior returns over time. If a manager is lucky or skillful, they can beat the overall market return by focusing on things the manager believes will happen.
'Passive funds' buy everything in a specific index, in the proportion that they currently are. You will never do better than the index (actually, you will do very slightly worse)-but you'll never do very much worse.
Someone holding a few specifically chosen mutual funds is doing so in the belief the managers know what they're doing or have special knowledge or skill the overall market does not, and will beat the market return. Some people are successful at this. Some investors can buy specific stocks and produce outsize returns, and some buy and lag the overall market.
Holding dozens of random mutual funds is usually not very smart, because that kind of diversification means you will generally never do better than the market (when one manager's fund is up, another is likely to be down)-but you'll *probably* never do very much worse. However, it's complicated to do it that way, and it's much simpler to hold a very wide index fund if average return or loss is what you're after.
I am specifically not addressing if active management or index investing is superior. People hold very strong opinions on this subject that border on strongly held religious beliefs, and depending on the time period, index, and individual investor discussed, people can make a case for both sides.
What I believe you're after for YOUR specific circumstances is a broad index fund, for instance S&P 500 index (one of the Vanguard funds, e.g. VFIAX, does this) . Set it and forget it. You won't beat the overall market return, but you probably won't lose, either, and index investing is nothing if not simple.
Last edited by GeorgiaTransplant; 06-08-2013 at 09:35 AM..
You can leave it @ WF, They do have fees and costs. or move the whole thing to a discount stock broker, like Fidelity/Schwab.
You might want to learn up on Investing, (Fast). I'm not a fan of the Investing For "Dummies" type books, but it might be a good place to start.
One Thing to keep in mind NoRisk = Low/No growth, (maybe even loss due to inflation/fees) HighRish = High reward/loss
Haha. Yes. This is what I was trying to avoid.
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