How to build your own mutual fund

greenieS

Verified member
What this means? Think of it this way: If you hire a personal trainer to help you look and feel better, you expect better results than you can achieve on your own. In other words, spending hard-earned dollars should bring you value. Pay someone commissions and fees to increase the value of your portfolio, when there is something you can do on your own, it is useless at best and, at worst, an unpleasant extravagance.

Let's look at how you can build your own mutual fund and pave the way for performance, not mediocrity. (For reading, see "Overcoming the Market").


Understanding mutual funds and burdens


Mutual funds are essentially a basket of several, or sometimes hundreds, of individual shares. As a mutual fund investor, you pay the portfolio manager to buy and sell shares and / or bonds on your behalf. These investors send you expenses in the form of an expense report. It doesn't stop there: some funds charge you a "charge" based on the class of fund shares you buy. Uploads are fees for the purchase and / or sale of funds. The burden of a mutual fund is greatest if the fund is bought and then sold in the short term.


Fund managers usually want control over your money for longer periods of time, and you are discouraged from trading or hedging mutual funds. Whether you buy a fund for a year or twenty, avoiding funds that have a charge will save you dollars. These costs, although disclosed and transparent, are intended for potential profitability, especially over longer investment horizons.

How to build your own mutual fund

Before you begin


You can start building your own shopping cart by doing some homework. Investing your time will save you dollars in the long run. In addition to your time, your only expense is the transaction fee to buy and sell stocks. Most discount brokerages today charge less than $ 20 per transaction.


To get started with good stocks, it is essential to avoid recurring trading expenses: good stocks are the ones you hold, while the stocks you unload are "losses". Search through Investopedia and sites like Yahoo Finance, Motley Fool or CBS MarketWatch and start a list of companies to familiarize yourself with.

Companies such as Wal-Mart (NYSE: WMT), Microsoft (Nasdaq: MSFT), Target (NYSE: TGT) and other US business icons can form the basis of a major portfolio of stocks. If you know very little about stocks, take a class on the basics of investing in a community college, buy a book or two about basic investment choices, or look for investment tutorials on this site.


Keep in mind that not all mutual funds are created equal. If you do not have the time or inclination to build your own portfolio, then target mutual funds with an expense ratio of less than 1% and avoid uploads at all costs.

Staying ahead


Perhaps the most important factor in deciding whether a fund is worth investing in your investment dollar is its relative performance - how your potential new funds compare to the index and its peers. Each fund has a benchmark in terms of performance and spending. The most common is the Standard & Poor's 500 index, but there are a few others that are prominent.


If your fund is performing poorly and your fund manager is charging you money for poor performance, it may be time to move on. Yes, there is a truth that past performance does not guarantee future results, but you can help optimize future performance by minimizing unnecessary costs, such as loads and high expense ratios. Sites like Morningstar and Lipper have a good picture of performance and relative costs. Simply enter your fund symbol, and the relevant data should be readily available for your analysis.


Another option that investors should take seriously is to put the money in an index fund, which is a fund strictly correlated with a certain index - say, Dow Jones 30 or Nasdaq. These funds do not trade or return stocks frequently, so expenses are minimal; In addition, these are usually uncharged funds. Industry experts credit Jack Bogle and the Vanguard family with funding as the leading low-income investor.

One of the disadvantages or risks of investing in index funds is that you are at the mercy of the composition of that index. In other words, if the composition of the S&P 500 or the Dow Jones changes, you're stuck with what money managers are talking about a rebalancing effect. Many also argue that these indices are slowly adapting to the overall economy.


For example, one of the most successful companies and stocks in the last decade was Apple Inc. (Nasdaq: AAPL). If you own a mutual fund that has been indexed with Dow Jones 30 shares, you do not own Apple shares. Whether Apple should be included in the Dow 30 is certainly debatable, but the fact is that your investment in what is supposed to be a large basket of American companies may, in fact, not be representative enough. (To learn more, read "Why the Dow Matters.")

Bottom line

Investing in traditional mutual funds is not necessarily incompatible with meeting your financial goals, but most of these funds pay you out-of-pocket for secondary performance. Building your own mutual fund or at least minimizing unnecessary expenses is essential for optimizing long-term returns. Beginner investors may want to consider index funds as a low-cost option before venturing out and buying individual stocks. Keep in mind that building your own fund requires extra effort, but the tools you need are readily available on the web - more than ever.
 
Top