For most people the best investment for 2011 will again be an investment in mutual funds, and finding the best funds can be compared to shopping for a car. Both funds and cars are a major investment, and both are vehicles designed to take you where you want to go. Here we focus on finding the best funds, because most folks know even less about their mutual fund investments than their car.
Mutual funds are simply investment vehicles or packages of securities like stocks and bonds… that are designed and managed for people who want help managing their investments. The best funds for you will depend on your objectives. Finding your best investment in funds for 2011 will be much like finding your best deal on a car. Every fund states its objective, characteristics, fees and charges up front – like the sticker on a new car. Here are your 4 basic types: stock, bond, money market, and hybrids. Let’s take a closer look under the hood and see if we can find your best investment.
The MONEY MARKET type are your best funds investment if your objective is high safety and high liquidity. They pay dividends that change with prevailing interest rates, do not fluctuate in value, and can be cashed in without fear of taking a loss. For most folks your best investment here is a general purpose taxable variety. If you are in a higher tax bracket, your best money market funds will likely be the tax-exempt variation, where interest earned can be tax-free from federal income tax.
Bond funds are your best investment if you want to earn HULT PRIVATE CAPITAL higher interest income and are willing to take at least a moderate risk in 2011 and beyond. Unlike money market funds, these DO fluctuate in value, and will lose value if interest rates go up. The best funds here to keep risk moderate: short and intermediate-term varieties. Your best funds deal: no-load INDEX funds, where you pay no sales charges to invest and much less than average for yearly expenses. No-loads are like getting a nice discount off the sticker price. Low yearly expenses are like getting the best gas mileage available with the car of your choice.
Stock funds are your best investment vehicle for higher profit potential, and they are also the riskiest of our 4 basic types. In 2011 and beyond the number of investment options may appear overwhelming, so we’ll generalize and keep it simple. The best stock funds for most folks are the general diversified ones labeled as EQUITY INCOME, that invest primarily in large U.S. companies whose stocks pay regular dividends. To give more diversification to your portfolio the best funds to add to the above are diversified international funds that invest worldwide. In both cases the best buy is again INDEX funds of the no-load variety. Why not get the most for your investment dollar?
The fourth type is called balanced or HYBRID funds, because they invest your money in all three of the above areas. Models available might be called target, lifestyle, or asset allocation funds. The best investment here will depend on your risk preference: conservative, moderate, or aggressive. You make your choice and they do the management. In my opinion these are the best investment funds only for folks who want to do one-stop shopping – and are willing to trust that management’s perception of risk matches their own. When you make an investment here your best deal are no-load index funds as well, because some hybrids have heavy charges and expenses.
For 2011 and beyond mutual funds will still be the best investment vehicle for most people and the best funds for you will basically depend on two things. First, your objective and risk tolerance. Second, getting the most for your money. The very best funds (stock, bond, and hybrid) don’t pay salesmen to push their investment products, and don’t pass high management costs on to you. No-load INDEX FUNDS: your best investment in mutual funds.