Mutual Funds the Basics

I recall having read an interesting little quote related to the stock market, it went something like this, “Market Statistics are like a bikini, what they reveal is important, what they conceal is vital.” If your like many of us who are trying to save and invest money for our, or our children’s future. You might find that understanding all there is to know about the stock market is an exercise in futility. Attempting to comprehend market fundamentals, economic theory, interest rate implications on investments, and fundamental analysis of individual companies is at best challenging. Adding insult to injury, we must then muddle through the dizzying array of investment categories such as : small cap stocks, mid cap stocks, large cap stocks, growth stocks, value stocks, international stocks, global stocks, emerging market stocks, alternative energy stocks. Doesn’t it just make you want to throw your hands up in frustration, and run out to your nearest bank to open a cash savings account, wipe your hands clean of the whole mess and move on!

I will not attempt to even discuss dealing with brokers. Mark Twain had a interesting view on brokers it went something like: “I consider that a broker goes according to the instincts that are in him, and means no harm, and fulfils his mission according to his lights, and has a right to live, and be happy in a general way, and be protected by the law to some extent, just the same as a better man. I consider that brokers come into the world with souls – I am justified they do: and if they wear them out in the course of a long career of stock-jobbing, have they not a right to come in at the eleventh hour and get themselves half-soled, like old boots, and be saved at last?” I’m not as hard on brokers as Twain, but I can see his point.

There is an avenue for investors of all ilk’s to go about the business of investing their hard won earnings. It may not even require a high speed internet connection, an Iphone, or the ability to comprehend the minutia discussed above. Mutual funds offer the individual investor the ability to invest in the stock market while allowing them to forego the intricate, and time consuming exercise of evaluating individual stocks.

There are literally thousands of mutual funds available to investors. The Investment Company Institute (ICI) has identified over 8,500 funds which invest over $11.39 trillion . That’s trillion with a “T”! According to the ICI: 96 million individuals own mutual funds, the median age of mutual fund holders is 48, 56% are college graduates, 49% are baby boomers, 24% are generation x, $48,000 is the median amount of funds they own.

The following is an list of some of the more popular funds available: American Century Investments*, Ariel Mutual Funds* , Aston Funds, Ave Maria Funds, Baron Funds*, Charles Schwab & Co Inc*, FAM Funds, Fidelity Investments*, Franklin Templeton* Investments, Gabelli Funds LLC, Janus*, Julius Baer Investment Management, Kelmoore Strategy Funds*, Managers Funds*, Master’s Select Funds, Matthews Asian Fund*, Oak Associates*, Royce Funds*, RS Investments*, Schwartz Value Fund, Skyline Funds, Stratton Management Co., T. Rowe Price*, Third Avenue Funds*, Thornburg Investment Management*, TIAA-CREF Mutual Funds*, U.S. Global Investors, Vanguard Group*, Wachovia Mutual Funds*, Wells Fargo Adv. Funds*.

Mutual funds can be purchased in several different ways: through a broker, direct purchase from the fund company, and online purchases are some of the most common. Direct Purchase Funds allow investors to purchase shares of mutual funds usually with little, or no fees. Some fund companies may charge an initial fee of up to 3% to establish your account. Many funds with Direct Purchase Plans allow investors to invest in funds online, while others require investors to complete an application and submit it by mail with a check for the initial investment amount. The funds listed above with * allow online transactions.

Prior to investing in any fund individual investors should educate themselves regarding mutual fund classes. Funds are typically classified as A,B, or C funds. Class A shares usually involve funds which charge a “front end load fee” and 12b-1 fees, Class B shares have fees that decline over time and 12b-1 fees, Class C shares have 12b-1 fees of about 1% per year and a 1% exit fee if you sell your shares within 1 year of their purchase. For the sake of brevity, I will simply say that most long term investors typically choose class B shares because over time they will convert to Class A shares. This conversion allows long term investors to purchase Class B shares that will eventually become class A share with out having the pay the front end load fee.

Fund’s fees can be confusing, fortunately there is help available for individual investors, a few outstanding resources I would recommend all investors utilize to learn more about funds in general are:,,, The Mutual Fund Education Alliance at, and the book Kiplinger’s Guide to Investing Success 6th Edition. This book is a particularly good resource, I highly recommend it to novice and experienced investors alike. Many other web sites have fund screeners that are available including:, yahoo,,, Additionally, there are several very good articles related to investing in mutual funds, and other investment categories located at, just click on “personal finance” and choose from several different investment topics!

Regarding fees, the Mutual Fund Education Alliance has an outstanding section regarding fund classes and associated fees. It also has fund a screener that allows you to input criteria for finding funds you might be interested investing in. I ran the following fund screen and was presented with the options listed below. Criteria: Fund categories – All, Load type – No load, Account type – Automatic Investment Plan, minimum required investment amount – $50, Morningstar Rating – 5 Star Funds, Morningstar Risk – All, Expense Ratio – 1% or less, Management Fee – 1% or less, Redemption Fee – Yes, 12b-1 fee – No. Here are the results of the screen: Franklin Balance Sheet Investment Adv (FBSAX), Franklin Federal Tax – Free Income Adv (FAFTX), Franklin Templeton Founding All Adv (FFAAX), Marshall Government Income (MRGIX), Mutual Beacon Z (BDGRX), Mutual Qualified Z (MQIFX), Mutual Shares (MUTHX)

Often a particular interest to new investors are mutual funds that allow investments in small amounts. That is, many funds require a minimum investment amount of $1000, $2000, $5000, and higher in some instances. Yet, there are funds available that allow investors to start investing with minimum amounts. T. Rowe Price is one that comes to mind. They will waive the initial investment amount for some of their funds and allow the investor to start investing in a fund with as little as $50. They do require that the investor establish recurring monthly investments through their bank account, all of which can be done online at
TIAA – CREF is another company that has a similar program.

Finally there is one other company I will mention that will allow investors to invest in mutual funds, Individual Retirement Accounts (IRA), or a simple savings account with only minimum amounts, as low as $1 per day, week or month The name of the company is save For more on this issue see my article “Getting Rich One Dollar at a Time” at the following web address: