By James Leitz

Informed investors who want to put their money to work to earn higher returns invest in stocks. Unless you are an experienced stock picker who really knows how to invest, your best option is to invest in stock funds. Unless you get investor tips from a real pro or pay for advice, picking stock funds to invest in is your job.

Don’t be too casual when picking stock funds. Stock (equity) funds are the primary growth engine of the average investor’s total portfolio. This is where you make the big profits, or take your largest losses. Here are some investor tips geared to those of you not quite yet up to speed on how to invest in stock funds.

Do not put much faith in investor tips that tout specific funds as the “best ” or “hot”. Some of this free advice is self-serving, and most of it misses the mark. There are thousands of equity funds out there, and nobody has a great track record at picking the best.

Do not chase performance. Last year’s big winner is sometimes next year’s big loser. A few lucky bets by a fund manager can later blow up in investors’ faces as market conditions change.

Focus on stock fund types or categories. Do not jump from fund to fund in the same category without good reason. If a fund has a poor track record vs. other similar funds, avoid it. A proven loser doesn’t often change its ways.

If you own a fund that tends to under-perform other funds in its category, dump it. Mutual fund literature will compare a fund’s performance to an index of comparable funds. Look at this literature.

If you are just learning how to invest, but realize that you should invest in stock funds for growth, get started the easy and safest way. Start with a TOTAL MARKET INDEX fund or an S&P 500 INDEX fund. These major index funds track the U.S. stock market in general. You participate in the stock market without the fear of having picked a loser fund.

Check a fund’s expense ratio, they all have one. These expenses come out of your pocket and eat away at your fund’s value. Index funds can have low expense ratios, costing you less than one-half of 1% a year to own and hold. Some stock funds charge more than 2% a year. A high expense ratio is no indication of high quality.

There are numerous types or categories of stock funds. In picking stock funds when you know little about how to invest, look first at LARGE-CAP funds that are general diversified funds called either EQUITY INCOME or GROWTH and INCOME funds. These invest in the likes of IBM, Coca Cola, Wal-Mart, and GE. They pay average dividends with average risk.

SMALL-CAP and GROWTH funds are riskier popular categories of stock funds. Consider smaller positions in these funds if you want further diversification. Your major stock holding(s) should be large-cap diversified funds, with an S&P 500 Index fund being a perfect example.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com

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Investing in Alternative Energy Mutual Funds
By David Farrands

As the world’s consumption of energy increases there are many companies that are looking for new and cleaner ways to produce power. It stands to reason that these companies will be quite profitable in the near future and they are beginning to gather a lot of attention from investors.

Since many of these companies are relatively new there is no benchmark to compare then to. Picking individual companies that will be profitable in the long term is quite difficult. That is why many people are beginning to research alternative energy mutual funds. These are investments that pool the money of many people together and use it to invest in numerous companies in the alternative energy field.

Investing in alternative energy mutual funds can help you earn a profit while supporting companies that are working to provide clean forms or power, reduce pollution and lower our dependence on foreign oil. Many people include alternative, green or renewable energy mutual funds in the same categories as socially responsible investing or green investing.

When making any investment you should carefully read the prospectus to ensure that the goals of the funds manager matches you personal goals. Investing in alternative, renewable or green energy mutual funds is really no different.

Currently there are relatively few investment firms that offer alternative, green or renewable energy mutual funds, but the number is growing quickly as demand for investment grows. Many research sources are available on the internet including MarketWatch, MSN Money and Yahoo Finance. All are good starting points for finding information on alternative, green or renewable energy mutual funds.

For more information visit Green and Alternative Energy Mutual Funds and Energy Mutual Funds.

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Investing in Funds is One of the Safest Ways to Protect Your Money
By John F Brown

The Stock market and share market are ideally suited for making huge money, but the amount of risk involved in those fields is certainly high. To minimise your risk and to protect your money, consider investing in funds. Though you cannot expect huge returns like stock or shares, you can definitely find good value for your money by investing in funds. Even with a small sum of money, you can protect it using funds. By consulting a professional money manager, you can decide your investment plan. Investing in funds is also a do-it-yourself task if you know the types of funds.

Investment trusts

Investment trusts use your money along with the money of other investors to invest all the money across various shares. The best way to protect money while buying shares is to distribute the investment. When you invest in shares on your own, you have to invest at least £1000 a month to protect your investment. But, with investment trusts, you can invest £50 a month and get the same protection and benefits. Using investment trusts, you can expect your investment to grow even if the share price of companies reduces. The reduction in price of some company shares will be compensated by the increase in price of other shares. This policy allows you to invest your money across the globe in an indirect way. Your profits with investment funds depend on the fund manager you choose.

Unit trusts

By buying unit trust, you are using your money to buy units in a fund. The value of the assets held by fund managers determines the price of a unit. When investors invest more money in funds, new units are created. The size of unit trust is never restricted and it can increase and decrease according to the demand. Investors buying units will have to pay a price called as offer price and investors selling units pay a different price called as bid price. The difference between these prices is called spread and it determines your profit. As unit trusts cannot be carried worldwide, a variation of unit trusts is now widely used for investing in funds.

Investment companies with variable capital (ICVC)

Just like unit trusts, you will be buying shares instead of units for investing in funds. These are also open ended and you hold shares of the fund manager. The variable price of unit trusts creates confusion and hence, in ICVC, there is only a single price that makes everything clear. You always know the exact amount you are paying. Using ICVC, it is possible to equate British in-line funds with other country funds.

The investment trusts also function by market speculation. Sometimes, the price of the trust may be less than the value of the asset. In that case, the trusts will be sold at a discounted price. When investors find out that the price of these trusts will rise in the future, they will invest more in those trusts. For any type of investment, risks are involved because there is no guarantee that the fund manager will perform without errors. By carefully choosing your suitable investment type, you can reap benefits in the future.

John Brown recommends visiting Alternative Investors for hints and tips on investing your money.

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The Best Bond Fund
By James Leitz

The best bond fund for most average investors could be a high-yield, or long-term, or corporate bond fund. Then again, maybe not. This article takes you back to bond basics to find the best bond fund for most investors. Read on. You could save thousands, or make additional thousands based on the information presented here.

Getting back to bond basics, folks invest in bonds and bond funds primarily to earn higher income than they can get from stocks and savings vehicles like bank CDs. Few average investors invest in individual bond issues, because that requires significant knowledge and experience.

Bond funds, on the other hand, are professionally managed and offer investors diversification, sometimes at a reasonable cost. These funds hold bonds in their portfolio, and these bonds pay interest. This interest is passed on to investors in the form of dividends.

There is only one way I know of to get rich with bond funds. Wait until interest rates get historically high, as in the early 1980’s. Then, borrow a ton of money, and buy as soon as rates start to fall. Now, let’s get back to reality because interest rates are near historical lows.

When you buy shares of a bond fund these days, you are simply trying to get the highest income you can, without taking on heavy risk. As I have said in other articles, bond funds have interest rate risk. This means that if you invest now and interest rates go up in the future, the value of your investment will fall. Who wants a bond(s) that pays 6% when new bonds are paying 9%? Investors will buy it … but only at a reduced price.

NOW, let’s look for the best bond fund available. We will play “elimination” and weed out the risky ones and the losers. First, high-yield bond funds pay higher dividends for one reason. They hold high-risk bonds that are often referred to as JUNK. Second, long-term bond funds pay higher than average yields (dividends) because they have higher interest rate risk. Third, foreign bond funds are riskier because the value of the dollar fluctuates, and this could work against you.

Now, let’s eliminate bond funds because they pay lower dividends. Government bond funds invest in the likes of U.S. Treasury bonds, which are the safest on earth. And short-term bond funds are relatively safe because they hold bonds that mature in a few years. The problem is that neither of the above pays dividends worth taking any risk to get.

Now, we’re ready to zoom in on the best bond fund, which would probably be a higher-quality intermediate-term bond fund. We don’t need the highest quality, because we want good dividends.

I have in front of me such a fund, and it has a dividend yield of over 6%. But this is not the best bond fund I can find. The reason is that even though it is offered by one of the biggest and best mutual fund companies, it is rather expensive to buy and to own.

If you invest $10,000, 4% comes off the top for sales charges. Then, as long as you stay invested, 1% a year is taken to pay for expenses.

Now we save/make some money. The best bond fund is similar to the above, except that it costs you zero to buy it and yearly expenses are less than .25% a year vs.1%. This bond fund is a no-load, intermediate-term BOND INDEX FUND.

After all, we are not out to make a killing here, and a dollar saved is a dollar earned when it comes to bond funds.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com

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Variable Annuities And Why They Make Sense
By Thomas Corley

Annuities have so many advantages over other investment vehicles, including mutual funds, that it makes one wonder why everyone doesn’t consider them more often. When you think about variable annuities think about mutual funds on steroids.

Everyone pretty much understands how mutual funds work. The fund managers invest in a variety of publicly held companies, usually with a track record of strong earnings growth or strong earning potential. If the mutual fund sells any of its investments (public company stock) the gains are passed through to their individual mutual fund investors (you and me) and taxed as capital gains. There may also be dividends that the mutual fund passes through to its investors, which, likewise, come from the dividends paid to the mutual fund by the public companies the fund owns.

Annuities are very much like mutual funds in that they too have fund managers who invest in various publicly held companies. However, unlike mutual funds, any gains or dividends realized by the annuity are not taxed to the annuity investors (called “contract owner”). All income and appreciation in the annuity investments grow tax deferred. Annuities are not taxed until the contract owner begins withdrawing money out of the annuity. This allows 100% of the annuity investment to compound year after year, without being reduced by any income taxes.

Tax deferred growth is the main reason annuities are favored over mutual fund investments. There are other advantages as well. Most annuities come with what is called a death benefit. This death benefit is paid to the annuity contract owner’s beneficiary upon death. The very nature of the death benefit provides annuity investors and their heirs with a guarantee of sorts on the annuity investment.

For example, suppose John Smith invests $200,000 in a deferred variable annuity and the next two years the stock market collapses 15%. If John were to pass away shortly thereafter and this money was, instead, invested in a mutual fund, John’s estate would be entitled to only $170,000. If John’s money was, rather, invested in a variable annuity his beneficiaries would receive $200,000, his original investment. You see, annuities make it possible for conservative investors to gamble their money on the stock market, hoping for the big wins, without losing their investment, as is possible in a mutual fund.

Also, many annuities permit the contract owner to lock in the gains they have realized in their annuities by stepping up the death benefit to the value of the annuity at a certain date. For example, suppose John Smith’s annuity investment of $100,000, which included this step-up feature, were to grow to $150,000 at the end of year two but fell to $90,000 in the beginning of year three. Now if John Smith were to pass away shortly thereafter his beneficiaries would be entitled to $150,000, not the $90,000 value at death. If John were invested in a mutual fund his estate would only receive the $90,000 value at death.

More good news. Most mutual funds charge an investor some type of commission commonly referred to as a “load”. These commissions can be as high as 8.5% but typically average about 4%, and for those mutual funds called “A Shares”, this commission comes right off the top of the amount you just invested (”front load”). Thus a $5,000 investment in a mutual fund may mean that only $4,575 ($5,000 minus 8.5%) is going to work for you. So right out of the gate you may have to make a 10% return on your money just to get back to where you began.

The great majority of variable annuities do not charge a commission to the investor. Whenever you invest in any annuity, 100% of your investment goes right to work for you, immediately. When you invest in an annuity, money grows and compounds tax-deferred indefinitely. The only time you pay income taxes is when a withdrawal is made, and you only pay taxes on those withdrawals that are considered accumulated growth or interest, not on monies received that are considered a return of your original investment.

Annuities come in three flavors: fixed, equity-indexed and variable. Fixed annuities are like CD’s on steroids. They guarantee a fixed rate of return and your underlying investment is guaranteed by the insurance company. It is the most conservative annuity investment available. Equity-indexed annuities are fixed annuities whose return is not a guaranteed rate of return but rather a variable one that is linked to an index such as the S&P 500. Equity-indexed annuities seem to have it all: guaranteed minimum contract value, the opportunity to participate in the long-term growth of the stock market, no loss of accumulated earnings (no downside) and no investment decisions to make. Indexed annuities are fast becoming the annuity of choice to conservative investors who are not satisfied with the conservative returns offered by their pure fixed annuity brethren.

Variable annuities are the celebrities in the annuity family. They are the glamorous cousins to the fixed and index annuities. For all of the reasons mentioned above, variable annuities are the true kings of the annuity world. They offer variety, security, upside potential, limited downside risk and a way to pass along your estate to your heirs without having to go through the difficult probate process. Variable annuities offer those investors previously burned by the stock market, the ability to jump back into the market without the worry of losing money it has taken them a lifetime to accumulate. In a variable annuity you truly get to have your cake and eat it too!

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of “Rich Habits.”

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