Investment Companies – Mutual Funds (Part 2)

Welcome back for another installment of #FinanceFriday! Today we’re continuing our conversation about mutual funds. If you missed part 1, click here and catch up.

When people talk about mutual funds, they are more than likely talking about open-end mutual funds. Shares of open-ended mutual funds are bought and sold directly from the investment company, not from other investors. This means that all transactions are made in the primary market. The price per share is set one time per day at the end of trading and cannot be sold for less that it’s net asset value. All trades are processed overnight and most transactions have a T+1 settlement, which means the transaction is finalized (and you get charged for the shares) in 2 days (1 trading day plus one additional day). When looking for mutual funds in the market, mutual funds have a symbol (or quotron) that is composed of 5 letters with the last letter being “X”.

As with any investment, mutual funds have fees and expenses. The annual expense ratio is given as a percentage of the portfolio and includes management fees (which can be about 3/4 of your annual fee) and administrative or operating expenses. The higher the expense ratio, the lower the return will be. Mutual funds also have early withdrawal fees and redemption fees.

There is one more expense that may occur when investing in mutual funds, the load. The load is a sales commission that goes to the local representative of the mutual fund. Luckily, not all mutual funds have a load. The types of loads include: front-end (A), deferred or back-end (B), other letters (C, R, I, etc.), and 12b-1 fees (annual load). Mutual funds with no sales charge or load are referred to as no-load mutual funds. However, no-load mutual funds still have an annual expense fee to cover management and administrative costs. NOTHING in life is free, lol.

We’ll stop here and continue the series next week talking about the variety of mutual funds. I’m making an effort to make these articles shorter so they can be more easily digested and quick to read. Please let me know if you have any suggestions or questions by emailing me at or on Twitter. See you next time!


Investment Companies – Mutual Funds (Part 1)

I’m back!! I took a short hiatus due to traveling among other things, but I’m back to provide you with the basic investing information you need to build a prospering financial future!

Today it was announced that Amazon bought Whole Foods for $13.7 billion!! For those who already had Whole Foods stock, congrats because your investment has increased by 28% today! Amazon stock has also increased by 3.04% today and is valued at almost $1,000 PER SHARE! Google is another highly valued investment. You may be thinking (as I would be), “Wow. I can’t afford to buy a share of Amazon or Google.” WRONG! You can have shares in both Amazon and Google along with other highly valued stocks. How? MUTUAL FUNDS!

Mutual Funds, a type of pooled fund, are collections of different securities in a portfolio. If you buy a share of a mutual fund, you are buying a part of the whole portfolio. Mutual Funds come with management and administrative fees that you will have to pay.

Most mutual funds are considered open-ended, meaning there are no restrictions on the amount of shares the fund can issue to an investor. A closed-end fund raises a fixed amount of capital during it’s initial public offering (IPO) then trades a certain amount of shares on the open market. Other types of pooled funds include:

  • REITs: Real Estate Investment Trusts
  • ETFs: Exchange Traded Funds
  • Unit Investments Trusts
  • Annuities

The price or value of a share for a mutual fund is considered it’s Net Asset Value (NAV). A portfolio’s NAV can be found with a simple calculation: divide the total portfolio value by the number of shares outstanding. Not good with calculations? Not to worry, most investing information sites like will list the NAV for you.

Another aspect to consider when investing in mutual funds is taxation. Investors pay taxes on income and capital gains of their investments. Funds distribute all dividends and gains by end of year and the share price normally drops with the distribution (This is known as the Dividend Irrelevancy Theory, which will be covered in a later article.). Many investors reinvest their distributions instead of taking the liquid cash. Remember, you do not pay taxes on money that is actively invested, you only pay taxes on the dividends and distributions you receive (liquid cash).

The advantages of investing in a mutual fund include:

  1. Instant Diversification – As stated in the previous #FinanceFriday article, diversification risk can be decreased by investing in 20 different companies, preferably in different industries. Many funds have a round lot, which is 100 or more stocks, bunds, etc. GREAT diversification.
  2. Professional Management – You will have professionals managing the portfolio. This where the management fees come from.
  3. Custodial and other convenience services
  4. Great option for small investors (like myself)
  5. Great for 401(k)s – Many of your 401(k)s are made up of multiple mutual funds.

Sounds like a great investment option right?! I agree! As a risk adverse investor who wants to be able to invest in a wide variety of companies and industries, I love the diversification mutual funds offer. It gives me, a small investor, a chance at investing in companies whose price per share is way out of my budget. Be sure to come back next week (I promise! lol) for more information on how mutual funds can be classified, different type of investment styles mutual funds offer, and more!

Hit me up via email,, Twitter , or the comments below if you have any questions or comments. Happy investing!!

Retirement Plans

Happy #FinanceFriday ! Last week was hectic for me so I didn’t make time to post, but I’m back to discuss retirement plans.

I talk to my mother about retirement every time she makes a big purchase. It’s something I consider when I’m dipping into my savings account. Retirement is in the back of every working person’s mind.

There are 2 main types of retirement plans that are available through your employer: Continue reading Retirement Plans

Love yourself. Define yourself. Think for yourself.