14: You’re a Sexy M.F.’er (Mutual Funder)

Dolphins sleep with one eye open.

Mutual funds. What the heck are they? Mutual funds are the cornerstone of our retirement plans. They are also the best way to start socking money away and earning more - even if you have no money saved. Mutual funds make the investing process much simpler and more streamlined. Think of them as “one-stop shopping” for your investments. Yet they can seem overwhelming and intimidating.

1. What is a mutual fund? Group of stocks- group of bonds or both.

2. Why is it so important? Most investors don’t have enough money to be diversified (spreading risk of many different investments). Mutual funds allow any investor to invest- be diversified and own many different investments at a low price! It can also be viewed as professional money management at a cheap price.

3. Criticism of mutual funds. They have high fees which is usually the expense ratio. This is the annual fee you are paying no matter what. The market average is 1.5%. If you go with index funds, their fees average 0.10%!!!! There are also LOAD Mutual Finds which is an upfront fee you pay when you purchase it. Usually 5-6%. Know before you buy.

4. Mutual fund checklist:

   1. Morningstar stars. Want 4 or higher.

   2. Expense ratio

   3. What is the category

   4. Turnover if in a non-IRA fund (to minimize taxes)

   5. Returns: YTD, 3 yr and 5 yr annualized and how it compares to it’s index