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Health & Fitness

Money Talks: Mutual Funds

My name is David Godinez I am a financial advisor for Oak Tree Securities. I will be offering blogs discussing current financial situations as well as common suggestions for financial planning.

When discussing financial planning with potential clients, two of the most common reasons that I hear on why they cannot invest are that they do not have enough money or they do not have the time to invest.  While sometimes during the initial
consultation it is a fact that the client in not financially ready to invest but more times than not it is a misunderstanding on the options available to the client that does not allow them to invest for their future.

One of the most common financial products available to the public are mutual funds.  A mutual fund is a collection of stocks and/or bonds pooled together into one fund.  Each investor purchases shares which represent a portion of the total holdings of the fund.

As with each investment there are pros and cons involved and I will list a few of the major ones to help form a better understanding.

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Pros:

Diversification: Unless a client has a boatload of cash it is near impossible to purchase a portfolio of 10-20 individual stocks. This goes back to the number one reason many people do not invest.  They feel that they don’t have enough money to purchase all of the stocks that they hear about and they get discouraged.  Even if a person purchases one or two blue chip stocks, having a concentrated account is never a good idea. By pooling all of its clients investments a mutual fund can purchase multiple securities and therefore limit its risk if one or two stocks drop.

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Liquidity: Shares in a mutual fund can be sold whenever the client needs the money. There is no guarantee that the client will get more or less then they
put in but the state of mind that the investor has that they may remove the
money if an emergency comes up is always a good factor.

Professional Management: What should you buy?  When should you buy it?  What price should you pay?  These are all day to day decisions that often
investors need to make when purchasing individual stocks.  Mutual funds employ professional managers that conduct these day to day decisions.

Low Startup Cost: Many mutual fund accounts can
be opened up for as low as $250.00 and can have ongoing contributions as low as
$50.00.  Over time these deposits can add up to a nice nest egg.

Cons:

Lack of control: While some people may cherish the use of a professional manager controlling the fund that they are in, others do not like giving up control
over which stocks or bonds that they are involved in.

Price uncertainty:  With an individual stock you can look online
and get a price quote by the minute or often by the second.  Mutual funds calculate their price daily and often times it may not calculate the price until hours after the purchase.

Fees and Charges: Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs.  In a worst case scenario, these fees outweigh the performance of the particular fund.

There are many fund companies available and they often have various types of investment strategies that can fit every investor’s suitability.  They allow you to invest from income and growth to aggressive.  They have bond funds, balanced funds, high tech funds and funds that invest in companies from various parts of the world.

If you would like to discuss the options available or have further questions please contact me David Godinez at 510-552-4334 or email me at dgodinez@oaktreesecurities.net for a free financial consultation.

 

 

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