Saturday, 29 November 2014
Investing in mutual funds
Mutual funds are "A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus." (Source: Investopedia)
In 2006, I started to to look through our finances and found that my husband and I had been wasting money on a few unnecessary expenses:
1. Cable TV that we didn't really have time for
2. Subscriptions for magazines that are now piled up to more than 2 feet high.
Besides that, I also found that we'd been working and working but we had not been INVESTING our savings, which were stagnant in the banks where our monthly salaries were deposited.
That's when I started reading up about investment portfolios, short-medium-long term investments, diversifying our investments and etc.
As both of us had little to no experience in investments, we discussed it with the old folks who recommended:
1. Buying a house (real estate)
2. Mutual funds
3. Blue chip shares
Unfortunately, I found that we were about 10 years too late because the mutual funds that had high returns on investment now had low prices. Thus, our relatively high purchase price meant that our returns would just be slightly higher than that of a savings account.
Besides that, the quarterly or annual statements they sent made me nervous especially when I noticed a "-ve" in front of the "+/-" column. I also found out that the agents and the banks who sold me such funds earned a commission and a sales charge for helping me with each transaction e.g. buying the fund, switching funds.
First lesson in buying these funds is: you'll need to keep the funds until you reach the break even point i.e. recovered the costs of the agent's commission and the bank's sales charge.
During the period of 2008-2010, I earned a tidy sum from buying mutual funds that invested in the booming Asian markets e.g. China and Indonesia.
I think I held on to these mutual funds for a period of 3 years and since I don't really fancy tracking the unit prices of each mutual fund, I have stopped investing in them.
Update: Read this article on Prof. Teresa Ghilarducci on "How to Retire with Enough Money". She brings up a lot of related problems but the two take-away messages I got were:
1) Stay in your house until you've paid up the mortgage.
2) Stay beneath your means.