Forex Investment and Currency Trading

Mutual funds provide one-stop shopping for investors. You can own shares in lots of companies by buying shares in just one mutual fund.

There are many mutual funds in the United States, and you can find one specializing in just about any industry, investment philosophy, or stock type you can name. Shares are valued by adding up the value of the stocks owned and sub¬tracting expenses. The resulting sum is called net asset value (NAV).

To illustrate, assume you start your own (very small) mutual fund. You sell 100 shares each to your husband, your parents, and your in-laws, and hire Jo to manage the investments and Fred to audit the books. Jo buys 100 shares of Little Women Clothing Stores, now worth $51 a share, for a total of $5,100. To compute the net asset value, you take the value of the assets and deduct the $100 you owe Jo and Fred for their work, to arrive at $5,000. Net asset value is usually stated as an amount per share, so you divide by 500 (the number of shares you’ve issued to your nearest and dearest), for a net asset value of $10 per share.

It is highly recommended including mutual funds in your investment portfolio, along with individual stocks. They can help you avoid putting too much of your investment nest egg in any one basket.

Index funds
An index fund is a mutual fund that buys shares to match a specific stock market index. So a Standard & Poor’s 500 index fund doesn’t try to beat its benchmark, but simply to match it.

The Vanguard Group offered die very first index fund in 1975, spurred by John Bogle, the com¬pany’s founder. Bogle saw index funds as a way to drastically cut management fees, because running one required no research or expert analysis. Index funds require only administrative support to make sure they stay on target.

Market Terms
Return or total return measures a stock’s performance by combining all the ways investors earn money, including both capital appreciation and dividends or other cash distributions. For instance, a stock paying a 1 percent dividend that has gone up in price by 5 percent would provide a 6 percent total return. It’s the measure most often used by professional investors to size up how a stock has done.

Besides being inexpensive to run, index funds are a simple way to spread your money around among different markets. Buy shares in a Russell 2000 Index fund and you’ll own 2,000 U.S. small cap companies. Buy shares in an EAFE Index fund and you own larger companies in Europe and Asia. With index funds, you always know exactly what you’re getting.

Exchange Traded Funds
Exchange traded funds, or ETFs, are index funds you buy on an exchange rather than from a mutual-fund company. To create an ETF, a bank or other financial institution buys and manages a portfolio of stocks to match a specific index, then sells shares to investors.

The major advantage of ETFs over conventional index funds is that they can be traded instantly at any time during die day. Mutual funds, by contrast, can be purchased or sold only when the net asset value (NAV) is calculated, which is usually at the end of the trading day.

On the other hand, brokers charge commissions for buying and selling ETF shares. And there are ongoing fees, just as there are for index mutual funds.

Managed funds
Managed funds depend on people to pick their stocks. As noted, the fees for that guidance make managed funds more expensive than index funds.

In return, they offer just one advantage: die wis¬dom of the people picking the stocks.

There are many well-run managed funds. Many have low¬ered expenses, too, and offer strong management at a good price. Unfortunately, most managed funds are simply so-so, and not worth the extra cost.

These days, it’s hard to argue against the simplicity, focus, and low cost of index funds for at least some of your portfolio.

Closed-End funds
Most mutual funds are open-ended, meaning shares are bought and sold by the mutual fund company every evening. But closed-end mutual funds sell shares only occasionally. In between, the shares trade on a stock market, just like any other corporation.

Generally, shares of closed-end funds sell for less than the total value of the stocks the fund owns (although they also occasionally can sell for more). This discount doesn’t seem to make much sense, but the most widely accepted explanation is that it reflects investor doubts about how well fund man¬agement will do in the future.

Whatever the reason or reasons, you won’t want to buy shares in a closed-end fund at full price when they’re issued, because the price is likely to fall. When they’re being traded on the market, though, discounts can make a closed-end fund a good value.

Both Barron’s and the Wall Street Journal list dosed-end funds each week, with the discount or premium for each compared with its net asset value.