Operating Mutual Funds – how these profit exploding money makers actually work

Aug 19, 2010 by admin

Although investing in mutual funds isn’t the type of subject associated with wild parties and celebrations – it is something the serious investor should consider as a way of increasing their total worth.

“But what EXACTLY is a mutual fund” I hear you ask – “how does it work, who does what and how much do they cost?”

Hang on, slow down – one question at a time please.

What exactly is a mutual fund?

Mutual funds are sold in shares to the public, allowing them to own different percentages of the fund depending on the amount they invest.

Pay more = own more. Own more = get more $$ back again (theoretically)

Simple.

Stocks, bonds, money market securities and the like are purchased through the assets of these mutual funds in the financial markets.  Shareholders indirectly own the assets held in the mutual fund, but the fund is guided by the investment company that finds the best way to earn the biggest return. (Indirectly owning the assets through these funds allows them to avoid the big tax hit.)

How does a Mutual Fund work?

Usually, mutual funds are also known as open-ended investment companies. This means that they constantly issue new shares and redeem existing shares, but not all mutual funds are open however. Some mutual funds are ‘locked’ where they no longer will take on new investors.

The fund’s Net Asset Value is the key concept to understanding how a mutual fund operates.  By this value you can determine the value of a share of the fund at any time.  The market value of the fund’s assets less any liabilities, divided by the number of shares outstanding is the formula to understand Net Asset Value.

If you work through that it will show you exactly how much each share in the fund is worth when you are looking to invest in them. By comparing this number over time you can see the returns earned in a percentage. This is generally all done for you on a funds website or on any of the mutual fund sites that feature stats.

Who does what?

Mutual funds basically take your money, combine it with the money of other investors like you and then invest the total pool of money in investments with the best possible return.  The returns from the fund are then split to the accounts that bought in by the amount of shares that each person owns.  The fund managers then take their cut based on the fees that they charge you and you get your return.  These guys are worth it for the money they make you, so why not let them drive the car for a while and let you get the glory?

Different investment plans are a staple of the field, allowing investors to do so on a regular amount weekly, monthly, or however else you want to set it up.  Continuously invested accounts tend to get a higher yield on average, but if you don’t have the ability to do that, you can still make money.  Dollar cost averaging should be your goal; it is the strategy of the top investment experts in the country.

How much do they cost?

Different mutual funds have different types of fees involved with them as well. Some will charge you an up front percentage of your investment (front load).

Some will charge you a percentage of the investment when sold, this is a back end load. Then there are no-load funds which charge you nothing more than the annual operating fees.  An individual should seek to only use the no load funds since it saves a lot of your money. There are really no advantages to using a loaded fund unless it offers some incredibly returns. But normally you can find the same returns by several different fund companies.

So hunt around, compare not only price but also service and past record to date. And remember – a mutual fund is still based on products themselves that can reduce in value as well as increase – so never invest more than you can afford to be without, just in case!!

Roth-IRA or Roth-401(k); Predict its Future Value

Jul 31, 2010 by admin

How much money will be accumulate in your Roth retirement account?

If you’ve got Microsoft Excel (or just about any other popular spreadsheet program) running on your computer, you can use its FV function to forecast the future value of your Roth IRA or Roth 401(k).

The FV function calculates the future value of an investment given its interest rate, the number of payments, the payment, the present value of the investment, and, optionally, the type-of-annuity switch.  (More about the type-of-annuity switch a little later.)

The function uses the following syntax:

=FV(rate,nper,pmt,pv,type)

This little pretty complicated, I grant you. But suppose you want to calculate the future value of an individual retirement account that’s already got $20,000 in it and to which you are contributing $400-a-month. Further suppose that you want to know the account balance—its future value—in 25 years and that you expect to earn 10% annual interest.

To calculate the future value of the individual retirement account in this case using the FV function, you enter the following into a worksheet cell:

=FV(10%/12,25*12,-400,-20000,0)

The function returns the value 771872.26—roughly $772,000 dollars.

A handful of things to note: To convert the 10% annual interest to a monthly interest rate, the formula divides the annual interest rate by 12. Similarly, to convert the 25-year term to a term in months, the formula multiplies 25 by 12.

Also, notice that the monthly payment and initial present values show as negative amounts because they represent cash outflows. And the function returns the future value amount as a positive value because it reflects a cash inflow you ultimately receive.

That 0 at the end of the function is the type-of-annuity switch. If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the period (month in this case), following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention.

How to lodge a financial dispute

Jul 10, 2010 by admin

To lodge a financial dispute, you must first contact your nearest financial service provider. It is encouraged to contact the financial service provider under the consumer complaints department and discuss the issue. See if it can be resolved quickly.

Before considering the dispute, the financial service provider must have been given an opportunity to resolve the dispute with you directly. In most cases, the financial services provider has up to 45 days to respond to your complaint.

If the dispute remains unresolved after you have made a complaint to your financial service provider, you can lodge a dispute with any independent financial dispute’s consultant. For example, The Financial Ombudsman Service in Australia. You can even lodge a dispute through their online dispute registering services.

7 Simple Ways to Increase Your Credit Card Limit

Jun 20, 2010 by admin

Many credit card holders aspire for a higher credit card limit. The obvious reason for this is that a higher credit card limit enables the purchase of otherwise unaffordable merchandise.

First and foremost, credit card holders need to remember that to get a higher credit card limit, they must abide by the terms and conditions of the credit card company or bank.

Below are 7 other ways to get a higher credit card limit.

• The most important thing to do for getting a higher credit card limit is to prove your credit worthiness. This is the first thing that banks and companies look for when giving a higher credit limit.

• Attract positive attention from the credit card company or bank by paying finance charges once in a while. Obviously, this is not advisable on a repeating basis and should only be used as a last resort to increase your chances of getting a higher credit limit.

Proving to credit card companies and banks that you are good “borrower” can be a convincing way to get a higher credit limit. But be careful because this strategy also means that you will be paying finance charges which can accumulate in a hurry.

And always remember, a higher credit card limit means greater purchasing power, but it also increases the risk of your having to pay greater interest charges and other processing and late fees.

• Always spend within your credit card limit because doing so means that you are capable of controlling your expenses.

• Use your credit cards regularly. Don’t keep your cards for emergency use only. If you use your credit cards sparingly, banks and credit card companies will be unable to understand your spending and pay-back behavior. Under these circumstances, most banks and credit card companies will be reluctant to give you a higher credit card limit.

• Never make minimum payments. Instead, try to pay for the entire outstanding amount. This will usually give you a better chance of getting a higher credit card limit.

• Avoid late payments as much as possible. Not only will your increase payment increase, but you may also have to pay an additional fine for not clearing bills on time. This will also dim your chances of getting a higher credit card limit.

• The best and simplest strategy for getting a higher credit card limit is to use your credit card wisely. Always keep in mind that credit card companies keep a record of your transactions and payment patterns, so always pay on-time.

The bottom line is that your performance in the records of banks and credit card companies will determine whether you’ll get a higher credit card limit or not.

Eurozone debt crisis timeline

May 20, 2010 by admin

May 19 – France says it is not considering a ban on naked short-selling on European debt and says it has not been consulted.

Short selling is a trade that bets a price will fall. Naked short selling is when a trader sells a financial instrument with out first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale.

– Merkel urges the EU to speed up financial market supervision and introduce a new tax on them.

May 18 – Germany, in an attack on the financial speculation, which it blames for much of the euro zone’s debt crisis, announces a ban on naked short selling of shares in the top 10 German financial institutions, euro government bonds and on related transactions in credit default swaps (CDS).

– Euro zone finance ministers meet in Brussels to fine-tune their rescue plan, which comprises standby funds and loan guarantees that euro zone governments could tap.

May 17 – Germany says it is making plans to avert future crises.

May 13 – Prime Minister Jose Socrates and opposition leader Pedro Passos Coelho draw up steps to slash Portugal’s deficit, including 5 percent pay cuts for senior public sector staff and politicians. The deficit, which stood at 9.4 percent in 2009, is to fall to 7.3 percent of GDP in 2010 and 4.6 percent in 2011.

May 12 – Spanish Prime Minister Jose Luis Rodriguez Zapatero sets fresh spending cuts of 15 billion euros in 2010 and 2011.

May 11 – Germany’s cabinet approves the biggest national contribution — 123 billion euros in loan guarantees — to the euro zone’s $1 trillion emergency package.

May 10 – Global policymakers install an emergency financial safety net worth about $1 trillion to bolster financial markets and prevent the Greek crisis destroying the euro.

– The package consists of 440 billion euros in guarantees from euro zone states, plus 60 billion euros in a European debt instrument. The IMF will contribute 250 billion euros, taking the total to 750 billion euros, or around $1 trillion.

May 9 – The IMF unanimously approves its part of the rescue loans, and provides 5.5 billion euros immediately.

– German Chancellor Angela Merkel’s center right coalition loses state election in North-Rhine Westphalia, and its majority in the upper house, after agreeing to aid Greece.

May 6 – Greek parliament approves latest austerity bill.

May 4/5 – Public workers in Greece stage a 48-hour strike. Up to 50,000 protest in Athens. Three people are killed when a bank is set on fire.

May 2 – Papandreou says Greece has done deal with EU and IMF opening door to bailout in exchange for extra budget cuts of 30 billion euros over three years, on top of measures already set.

– The package amounts to 110 billion euros over three years and is the first rescue of a member of the 16-nation euro zone.

– Germany approves a 22.4 billion euro ($30 billion) share.

April 27 – Standard & Poor’s downgrades Greece’s credit rating to junk status. The next day it downgrades Spain’s rating because of poor growth prospects.

April 23 – Papandreou asks for activation of EU/IMF aid.

April 22 – Eurostat says Greece’s 2009 budget deficit was 13.6 percent of GDP, not the 12.7 percent it had reported.

April 11 – Euro zone finance ministers approve a 30 billion euro aid mechanism for Greece, but Athens has not activated it.

March 25 – European Central Bank President Jean-Claude Trichet says bank will soften rules on collateral for ECB loans, easing risk of Greek institutions being cut off from funding.

– Euro zone leaders agree to create joint financial safety net, with IMF, to help Greece and restore confidence in euro.

March 5 – A new package of public sector pay cuts and tax increases is passed in Greece to save an extra 4.8 billion euros. VAT to rise 2 percentage points to 21 percent; public sector salary bonuses cut by 30 percent; tax on fuel, tobacco and alcohol rise; state-funded pensions frozen in 2010.

February 5 – Spain attempts to raise retirement age to 67 from 65, which prompts first and only mass union demonstration against the government.

February 2 – Papandreou says Greece will extend a public sector wage freeze to those making below 2,000 euros a month.

– Greece must refinance 54 billion euros ($66.6 billion) in debt in 2010, with a crunch in second quarter as more than 20 billion euros becomes due and market yields for Greek debt soar.

January 29 – Spain announces plan to save 50 billion euros ($70 billion) including government spending cuts totaling 4 percent of GDP. The plan includes 4 percent cuts in public sector pay.

– Economists are unsure it will meet its target of cutting deficit to 3 percent of GDP by 2013 from 11.4 percent in 2009.

January 14 – Greece unveils a stability program, saying it will aim to cut its deficit to 2.8 percent of GDP by 2012.

December 22, 2009 – Moody’s cuts Greek debt to A2 from A1 over soaring deficits, the third rating agency to downgrade Greece.

December 9 – In Ireland, a budget delivers savings of over 4 billion euros. Public service pension age rises to 66 from 65.

December 16 – Standard & Poor’s cuts Greece’s rating by one notch, to BBB-plus from A-minus, saying austerity program is unlikely to produce a sustainable reduction in public debt.

Dec 8 – Fitch Ratings, which had cut Greece to A- when the higher deficit was revealed, cuts Greek debt to BBB+, the first time in 10 years it has been rated below investment grade.

November 20 – A final budget draft shows Greece aims to cut the deficit to 8.7 percent of GDP in 2010 to show EU partners and markets it is serious about restoring fiscal health.

November 5 – George Papandreou’s new socialist PASOK party government says the 2009 budget deficit will be 12.7 percent of GDP — more than double the previously published figure — and pledges to save Greece from bankruptcy.

(Writing by David Cutler, London Editorial Reference Unit;)