Investing: Look beyond stocks

When I first tried my hands at investing in stocks it was too complicated and it gets overwhelming when you realize that investing in stocks is beyond "buy low, sell high" (even then knowing "when" is the key, when you know a stock is low enough or high enough :) )

So my first investment was a mutual fund. I had investment in a Franklin Templeton Mutual Fund. To be investing in a equity diversified fund made sense. One it will have stocks and second it will be diversified. It worked well for me, I sold it as soon as I made some decenet profits on it (I think it was something like 15% including dividens). Later I realized mutual fund investing is not like stocks and should not be treated the same. If you want to invest in stocks then do so, if you want to invest in mutual funds dont think stocks.

Benefits of Mutal Fund investing:

If you dont have time to track the market and cannot follow all the research and steps in my post on April 7th, http://freedomat35.blogspot.com/2008/04/stocks-investing.html then mutual investing is for you.

1. Diversification. If you dont want to take too much risk and invest in all stocks there are funds with invest in stocks, bonds etc.
2. Professional Management: The idea sounds great doesnt it at first. I dont have time, I am not an expert why not give my money to someone who does this for a living and has a record of giving good returns.

Some negatives:

1. Fees: Entry load (fees you pay for investing), Exit load (fees you pay when you selling), Redemption fee (fee charged to you if you sell before certain time), Opearting Expenses (12b - For Management fees and for advertizing expenses).
2. Little control: Now that you are trusting the mutual fund company you personally dont have control of which stocks you sell and buy and when. Its the fund manager (so research well)

Research Well:

Best place for mutual fund research is morning star. Yahoo Finance being one of the best financial sites.

1. Look for history of fund manager
2. Reputed fund company
3. Look for past record (1yr, 3yr, 5 yr and since inception)
4. Compare with other top funds.
5. Look for holdings in the fund. The normally give top 10 holdings which amount of largest investments in the fund.

With the info above its a good point to start.

Good Luck !!

PS: I found something better than mutual funds. Next Post