A mutual fund is a pool of money from many different people which is then invested in a portfolio of stocks, bonds and/or other investments to meet a specific objective. They are very attractive to the average person because you can actively participate in a wide range of investments which would be prohibitively expensive on your own. Because mutual funds are managed by professional money managers, you only need to know which funds are consistent with your own goals and tolerance for risk.
How do they work? Instead of buying individual stocks or bonds you are purchasing a share of the fund, making you a shareholder. You can buy and sell shares in mutual funds and while you hold your shares you can participate in the fund’s rewards (increase in value) and risks (decrease in value). Mutual funds are very easy to invest in, although, fees and costs can vary widely.
For example, if a stock holding in your mutual fund pays dividends, then the fund manager later sells the stock at a higher value than he or she paid for it, you'll owe tax on two levels: 1) A dividend tax, which, generally, will be taxed as income, and 2) A capital gains tax, which will be taxed at capital gains rates. Even if you haven’t sold any shares, it is possible that you could receive a long-term capital gain distribution, assuming the mutual fund held the stock for more than a year. Therefore the taxes distributed to you are due to the activities within the mutual fund, not due to your own investing activities.
You will also want to make sure that you are correctly reporting capital gains when you sell your mutual fund. Remember if you reinvest dividends, your basis is increased which, in turn, will lower the amount subject to capital gains when you sell.
Stock funds instantly give access to a wide range of different company stocks which most people could not afford on their own, with the added plus that the mix of stocks within a fund is managed by a professional.
Stocks are shares of ownership in a company, so if that company does well the stock will do well (increase in value). However, if that company does poorly, or even the industry it is in does poorly, that stock may lose value.
This means that stock funds offer the potential for higher rewards than bond or money market funds, but they also come with more risk as well. Depending on your tolerance for risk, stock funds can be ideal for individuals with long-term investment goals. That’s often why they are so popular for retirement funds and pensions.
There are many different kinds of stock funds catering to all styles of investors and objectives. This is good, because it means you can find the right ones for you.
Mostly foreign-owned company stocks, or a combination of U.S. and foreign stocks. International securities are subject to political influences, currency fluctuations and economic cycles that are unrelated to those affecting the domestic financial markets and may experience wider price fluctuations.
Of course there are many other investments, along with funds that can provide a mix of different strategies. The important thing to remember is always choose with your goals in mind.
STOCK OR EQUITY FUNDS CAN BE GOOD FOR INVESTORS WHO:
Index Funds are called “passive” funds; the fund manager isn’t “actively managing” the stocks in the fund in an attempt to outperform what the market is doing, but simply trying to get as close to the index as possible.
What is interesting to many investors is that index funds generally do better than most other funds, and for that reason they have become very popular.
INDEX FUNDS CAN BE GOOD FOR INVESTORS WHO:
Can tolerate some risk
Prefer generally lower fees
At a very basic level, an Exchange Traded Fund, or ETF, is an investment that tracks an index, a commodity, or a basket of investments like stocks or bonds.
ETFs that track an index or a commodity try to mirror the performance of that index (such as the S&P 500) or the price of that commodity. Because ETFs are marketable securities, they are sold in shares that trade like a stock.
If you own ETF shares, you are entitled to your portion of profits, such as earned interest and dividends paid.
To evaluate the best investment options for you, please contact your advisor.
Exchange Traded Funds and mutual funds are sold by prospectus. For more complete information, please request a prospectus from your registered representative. Please read it and consider carefully a Fund's objectives, risks, charges and expenses before you invest or send money. The prospectus contains this and other information about the investment company.
Investing involves risk, including the potential for loss of principal. Past performance does not guarantee future performance. The companies of Alliance National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.
Securities and investment advisory services are offered solely through Registered Representatives and Investment Adviser Representatives of Equity Services, Inc., Member FINRA/SIPC, One National Life Drive, Montpelier, VT 05604. (800) 344-7437. Equity Services, Inc. is a Broker/Dealer and Registered Investment Adviser affiliate of Alliance National Life Insurance Company.
Mutual Funds are sold by prospectus. For more complete information, please request a prospectus from your registered representative. Please read it and consider carefully a Fund's objectives, risks, charges and expenses before you invest or send money. The prospectus contains this and other information about the investment company.
Diversification does not assure a profit or guarantee against loss. Investing involves risk, including the potential for loss of principal. Past performance does not guarantee future performance. The S&P Composite Index of 500 stocks (S&P 500®) is a group of unmanaged securities widely regarded by investors to be representative of large-company stocks in general. An investment cannot be made directly into an index. Investment decisions for mutual funds should not be made solely on assumptions regarding interest and dividend distributions. Investors must consider other factors including but not limited to a fund’s objective, risk factors and expenses.
